J & N REALTY, INC.

Homeowners Insurance Policy Key Endorsements  

Endorsements 

Most homeowners policies include endorsements. An endorsement is a form that is attached to a basic insurance policy to change one or more of the standard provisions of that form to meet the coverage needs of a particular insured or the underwriting requirements of the insurer with respect to that insured. Some endorsements add to or take away from the policy’s coverage in significant ways.  

Some merely correct faulty information, or even typographical errors, in the policy declarations. Listed below and discussed briefly are some of the more important homeowners endorsements. These forms make changes that are needed frequently enough—by either the insured or the insurer—that standard language has been developed for them. 

For the purpose of this analysis, the homeowner endorsements are organized into the following categories. 

·         Property endorsements 

·         Liability endorsements 

·         Miscellaneous endorsements 

·         Home business endorsements 

Property Endorsements 

The following endorsements focus primarily on property coverage. 

Windstorm or Hail Percentage Deductible (HO 03 12) 

Losses due to windstorm and hail account for huge loss payments for insurers. The cost of replacing a roof can run in the tens of thousands of dollars. This endorsement gives the insurer the opportunity to reduce its exposure to windstorm or hail losses by imposing a higher deductible for these specific perils. This endorsement is commonly used in areas of the country susceptible to hailstorms. 

The endorsement states that the insurer will pay only that part of the total of all loss payable amounts under the property coverage that exceeds the windstorm or hail percentage deductible stipulated in the schedule. 

An example will illustrate. John owns a $300,000 home in Oklahoma, an area that is very susceptible to hailstorms. In order to issue the policy, the insurer requires a 2 percent or $6,000 (2 percent x $300,000) deductible for this peril. If a hailstorm hits the home, resulting in the need to replace the $16,000 roof, John would have to pay the deductible of $6,000. The insurer would only pay $10,000 in this case. 

When this endorsement is attached to the policy, no other deductibles apply to the peril of windstorm or hail. 

Additional Interests (HO 04 10) 

This endorsement provides a way to acknowledge a party that has an interest in the residence premises other than that of a mortgagee, when the additional insured endorsement is not appropriate. If the policy is canceled or nonrenewed, the persons or organizations listed in the schedule are notified in writing. Note, however, that although this endorsement does entitle the listed party to a copy of this notice, it does not make that party an insured under the policy, unlike the HO 04 41. 

An example will illustrate the use of this endorsement. Assume the named insured borrows money from a particular party and lists his home as collateral on the loan application. This party could be specified in this endorsement as having an interest in the residence premises. 

Additional Limits of Liability for Coverages A, B, C, and D (HO 04 11) 

This endorsement increases the limits of liability for covered property when the loss to the building insured under dwelling coverage is greater than the dwelling limits listed on the declarations, provided that: 

·         The named insured has allowed the insurer to adjust the dwelling limit in accordance with the property inspection performed by or on behalf of the insurer and as the result of any increase due to inflation, and 

 The named insured has notified the insurer within 30 days of completion of any improvements or betterments to the home under dwelling coverage, which increases the replacement cost of the building by 5 percent or more. 

If there is a loss to the building, the insurer will not only increase the dwelling amount to equal the current replacement cost of the building, but also increase the limits under other structures, personal property, and loss of use by the same percentage. In addition, the insurer will adjust the premium from the time of the loss until the expiration of the policy to reflect the expanded coverage. 

Increased Limits on Business Property (HO 04 12) 

The unendorsed homeowners policy places a $2,500 limitation on property, on the residence premises, used primarily for business purposes. There is also a $500 limitation on property, away from the residence premises, used primarily for business purposes. This coverage is often inadequate. 

This endorsement allows expanded limits, but does not affect the covered perils. 

The business property sublimit may be increased in increments of $2,500 up to $10,000; however, this increased limit does not affect or increase the personal property limit. 

For expanded coverage for home-based businesses, refer to the home business endorsements discussed later in this course. 

Special Computer Coverage (HO 04 14) 

This endorsement expands coverage for computer equipment from a named perils basis to an all risk basis. For example, if the named insured drops his computer while moving it to another room and damages it, coverage is excluded under the unendorsed HO 3, since this is not a covered peril. 

However, with this endorsement attached, such a loss is covered, since this peril is not excluded. This endorsement does not (a) increase the personal property limit, (b) amend the personal property special limits, or (c) change any of the excluded types of personal property. 

Premises Alarm or Fire Protection System (HO 04 16) 

If the named insured has an alarm system and/or an automatic sprinkler system that the insurer approves, a premium credit is allowed. When this endorsement is attached to the policy, the named insured is required to maintain the system(s) in proper working order and advise the insurer of any changes to (including the removal of) the system. 

Property Endorsements 

The property loss exposure for a home with a burglar alarm system or a sprinkler system is less for the insurer and the insured. This endorsement provides a mechanism for the insurer to adjust the rate accordingly. 

Deferred Premium Payment (HO 04 18) 

This endorsement is used for homeowners policies with a 3-year term. With this endorsement, the named insured agrees to pay the premium in installments. If there is a change in the premium, the named insured agrees to pay each annual installment calculated at the annual premium in effect at the time of payment. This endorsement allows the insurer to collect the appropriate premium in effect for that particular year. 

Specified Additional Amount of Insurance for Coverage A—Dwelling (HO 04 20)—Forms HO 2, HO 3, and HO 5 Only 

This endorsement increases the dwelling limit when the loss to the building insured under the dwelling coverage is greater than the dwelling limit listed on the declarations, provided that: 

·         The named insured has allowed the insurer to adjust the dwelling limit in accordance with the property inspection performed by or on behalf of the insurer and as the result of any increase due to inflation, and 

·         The named insured has notified the insurer within 30 days of completion of any improvements or betterments to the covered home which increases its replacement cost by 5 percent or more. 

This endorsement is used in situations where the insured is selecting the limit based on the insurer’s recommendation, and this is a hedge in case the insurer is wrong. 

If there is a loss to the insured dwelling that is greater than the limit of the declarations, the insurer provides a higher dwelling limit as specified on the endorsement schedule. The schedule calls for the insertion of a specified percentage, which is the additional amount of insurance determined by multiplying the dwelling limit by the percentage stated. This endorsement does not affect any other coverage limits. 

Limited Fungi, Wet or Dry Rot, or Bacteria Coverage (HO 04 27; Forms HO 00 03 and HO 00 05) 

The endorsement provides property coverage for the following. 

·         Loss to covered property caused by fungi, wet or dry rot, or bacteria 

·         Cost to remove fungi, wet or dry rot, or bacteria from covered property 

·         Cost to tear out and replace any part of the building or other covered property to gain access to the fungi, wet or dry rot, or bacteria 

·         Cost to test air or property to confirm the absence, presence, or level of fungi, wet or dry rot, or bacteria, but only if there is reasonable evidence that these contaminants are present 

Thus, this endorsement insures the following scenarios, provided that the mold arises from a covered water loss. 

·         Mold destroys wallpaper in the utility room. 

·         Widespread mold requires the services of a remediation specialist to rid the home of this growth. 

·         The sheetrock adjacent to the washing machine has to be torn out and replaced in order to properly remove the mold. 

·         Due to the insured’s allegations of health problems related to mold, the insurer agrees to utilize a specialist such as an environmental consultant to test the home for mold and related contaminants. 

This endorsement limits liability coverage for loss from fungi, wet or dry rot, or bacteria to the amount specified in the endorsement schedule for Section II. A standard limit of $50,000 is available, on an aggregate basis, for the total of all damages arising directly or indirectly out of the “actual, alleged, or threatened inhalation of, ingestion of, contact with, exposure to, existence of, or presence of any ‘fungi’ wet or dry rot, or bacteria.” An increased limits option of $100,000 is also available. 

The amount of personal liability coverage (Coverage E) is designated in the endorsement schedule. 

To illustrate this coverage: assume the named insured procures a homeowners policy with the home business endorsement and the mold endorsement attached. She provides child care in her moldinfested home, which allegedly causes health problems with these children. The mold endorsement provides liability coverage if the children’s parents are awarded a judgment against the insured, but only up to the limits specified in the endorsement schedule. 

Conversely, assume the insured entertains guests with a dinner party, and the meal includes mushrooms (which are a type of fungus). If one of the guests becomes extremely ill due to her consumption of the mushrooms, coverage is unaffected by this endorsement, since the endorsement does not concern any loss due to fungi intended for consumption. 

Loss Assessment Coverage (HO 04 35) 

Many homeowners belong to an association of property owners. For example, a homeowners association may own property such as a neighborhood swimming pool or a clubhouse. In most cases, the association itself insures this type of common property. However, the coverage may be inadequate or it may be limited to only certain narrow perils. In addition, it is subject to cancellation and nonrenewal. If the association coverage is inadequate or unavailable, individual members of the association can be assessed to pay for the damage. 

The unendorsed homeowners policy pays up to $1,000 for loss assessments in connection with damage to the residence premises, subject to various limitations. This endorsement allows an increase in this limit. Loss assessment coverage for up to two locations, other than the residence premises, may also be added. 

For example, suppose that Mary is a member of a homeowners association for a gated community with swimming pools and a large clubhouse/game room. If the clubhouse suffers extensive damage in a fire, and the association’s fire coverage inadvertently lapsed, Mary may be assessed for damages. 

This endorsement allows additional limits in a situation like this since a covered peril causes the loss to the jointly owned property. If a flood causes the damage, no loss assessment is provided, since flood is not a covered peril under the homeowners policy. 

Loss Assessment Coverage for Earthquake (HO 04 36) 

The unendorsed homeowners policy does not cover earthquake losses. This endorsement, which provides loss assessment coverage for an earthquake loss, can be added for a specified charge with the attachment of the earthquake (HO 04 54) endorsement. See the discussion of HO 04 54 later in this course for details about the earthquake loss exposure. 

Many homeowners belong to an association of property owners. For example, a homeowners association may own property such as a neighborhood swimming pool or a clubhouse. In most cases, the association itself insures this type of common property. However, the coverage may be inadequate or it may be limited to only certain narrow perils. In addition, it is subject to cancellation and nonrenewal. If this coverage is inadequate or unavailable, individual members of the association can be assessed to pay for the damage. 

To illustrate: suppose that Mary is a member of a homeowners association for a gated community with swimming pools and a large clubhouse/game room. Mary has a homeowners policy with the HO 04 54 earthquake endorsement attached. If the clubhouse suffers extensive damage due to an earthquake, and the association’s property/earthquake coverage inadvertently lapsed, Mary may be assessed for damages. The loss assessment coverage for earthquake (HO 04 36) endorsement adds specified limits of coverage for this event if an earthquake caused the loss to the jointly owned property. 

Two exclusions apply. First, any assessments charged against the named insured by any governmental body are excluded. Second, any assessments made resulting from flood of any nature or tidal wave, whether caused by or related to an earthquake, are excluded. 

Structures Rented to Others (HO 04 40) 

The homeowners policy excludes coverage for “other structures” (structures other than the dwelling) on the residence premises that are rented or held for rental to any person not a tenant of the dwelling, unless the other structure is used only as a private garage. This endorsement expands this coverage. For example, John rents out his small guesthouse located at the back of his property to an outside party for use as a private residence. This endorsement is used to add property coverage for the guesthouse. 

There are three requirements under this endorsement’s property coverage. First, the structure rented must be on the residence premises. Second, it must be rented or held for rental to any person who is not a tenant of the dwelling; there is no need for this endorsement if the structure is rented to a tenant of the dwelling. Third, it has to be used as a private residence. If it is rented to any person to conduct business operations, coverage will not apply under this endorsement. 

The homeowners personal liability and medical payments business exclusion does not apply to the structures shown in the schedule. This exclusion precludes bodily injury or property damage arising out of connection with a business conducted by an insured or engaged in by an insured, with certain exceptions. Since this endorsement stipulates that the property has to be used as a private residence, the business exclusion, with its attendant exceptions, does not apply. 

Note that the business exclusion is deleted because it tends to muddy the water if left in because of its numerous exceptions granting limited “business” coverage. The fact remains that the HO 04 40 applies to the rental of property to be used as a private residence. There is no coverage if the structure is used to conduct major business operations. 

Additional Insured (HO 04 41) 

This endorsement is used to name the person or organization shown in the endorsement schedule as an additional insured with respect to the dwelling, other structures, personal liability, and medical payments to others. The ISO Homeowners Manual rule 104.A establishes three situations for using this endorsement. The first situation involves a person or an organization that is not a named insured, but may have an insurable interest in the home. For example, assume that John and his brother Frank purchase a duplex. John lives on one side; Frank lives on the other side. John purchases an HO 3 policy to cover the whole duplex as well as the contents in his half of the duplex. Frank procures an HO 4 policy to cover his contents for his half and his personal liability. This endorsement provides Frank additional insured status for the premises liability pertaining to the full residence premises. 

The second situation concerns a non-occupant owner of the home. Now assume that John purchases a single-family dwelling but his brother Frank, who lives in another city, is co-owner of the home. Frank benefits from the protection of this endorsement; however, Frank’s liability coverage applies only to the residence premises exposure. 

A third scenario also applies. Suppose that John is purchasing the home from his brother Frank. John is the purchaser-occupant who has entered into a long-term contract with Frank. The agreement stipulates that Frank retains the title until all the payments and other terms have been completed. 

Also, Frank’s capacity is not considered to be that of a mortgagee. This endorsement can be attached to John’s homeowners policy listing Frank as an additional insured. 

Coverage is excluded for any bodily injury to an “employee”, “residence employee”, or a temporary employee furnished to the insured to replace a permanent “residence employee” arising out of the employee’s employment by the person or organization. 

If the policy is canceled or nonrenewed, the party on the schedule will be advised in writing. Since the party named in the schedule is designated as an additional insured, that party is protected against lawsuits in connection with an injury to that party’s guests entitled to receive loss payments. 

Permitted Incidental Occupancies (HO 04 42) 

The homeowners policy is replete with exclusions and limitations for business exposures. For example, there is no personal property coverage for other structures from which any business is conducted. With this endorsement, many of these exclusions and limitations are eliminated for incidental types of business conducted on the residence premises. The endorsement schedule allows a limit and description of other structures to be listed. Examples of these types of occupancies include offices, schools, and studios. 

Under personal property coverage, only $2,500 in coverage for property used primarily for business purposes is afforded. This may be inadequate for an insured who operates a business from his home. 

This endorsement states that this $2,500 limit applies for this type of property; however, business property that includes furnishings, supplies, and equipment described in this schedule is not subject to this limitation. For the property described in the schedule, the full personal property limits apply. 

For example, assume that John repairs and sells a few computers out of his home on an incidental basis and normally keeps about $10,000 worth of computer equipment at any one time. He would have only $2,500 in coverage on the unendorsed homeowners policy. With this endorsement, he could add $7,500 in limits by listing it in the schedule. In addition, he would still have an extra $2,500 for any business property not scheduled. 

Under the homeowners liability section, the business exclusion does not apply to the operation described in this schedule. Also, under personal liability and medical payments, coverage does not apply to bodily injury to any employee arising out of the business described in the endorsement schedule. 

Replacement Cost Loss Settlement for Certain Non-Building 

Structures on the Residence Premises (HO 04 43) 

The homeowners policy only pays actual cash value for any losses to non-building structures such as walls, patios, decks, and walkways. The rationale is that since these types of structures are outside, they are subject to rapid deterioration and thus, are less favorable for insurers to cover on a replacement cost basis. However, many of these types of property can successfully resist the elements for many years and retain their original condition for an extended period of time. With the attachment of this endorsement, coverage for these structures applies on a replacement cost basis. 

In this endorsement, the following types of properties, which are not always subject to rapid depreciation, are covered on a replacement cost basis. 

·         Reinforced-masonry walls 

·         Metal or fiberglass fences 

·         Fences made of plastic/resin materials such as polyvinyl chloride 

·         Patios and walks (not made of wood) 

·         Driveways 

The endorsement does not increase the applicable limit of insurance, which is the limit shown for Coverage B (other structures) in the declarations. However, it might be wise to recheck the other structures limit to verify that it is adequate for the replacement of these properties. 

Inflation Guard (HO 04 46) 

This endorsement increases the amount of insurance under the dwelling, other structures, personal property, and loss of use coverages to reflect increases in these values due to building cost increases. 

It raises the limits, automatically and continuously, throughout the year by the percentage entered in the endorsement schedule. This endorsement’s purpose is to reduce the likelihood that an insured could be underinsured, at the time of a loss, after the policy has been in force for a period of time. 

For example, assume John and Mary purchase a homeowners policy with a $100,000 dwelling limit that barely meets the 80 percent coinsurance requirement. If this occurs during a period of high inflation, it will not be long until they are inadequately insured and will face a coinsurance penalty. 

The inflation guard protects them against this contingency. For example, if they were to add this endorsement with a percentage of 6 percent, then after 1 year, the amount of the dwelling coverage would increase to $106,000. In addition, other structures, personal property, and loss of use coverages are automatically tied into the adjusted dwelling amount and would thus increase accordingly. The endorsement applies on a pro rata basis. Thus, after 6 months in force, the dwelling coverage is $103,000. 

Other Structures on the Residence Premises (HO 04 48) 

The unendorsed homeowners policy provides for 10 percent of the dwelling limit to apply to other structures. In many cases, this percentage is inadequate. This endorsement increases the limit for other structures on the residence premises. For example, assume the insured has a $300,000 dwelling limit, which automatically provides her with $30,000 for other structures. However, she has a state-of-the-art detached four-car garage/game room that is worth $40,000. The insurer could attach the HO 04 48 endorsement describing this structure and specifying $10,000 in additional limits. Since the policy already provides $30,000, this $10,000 figure brings the coverage up to the adequate limit. 

Keep in mind that several structures can be listed. If Mary also has a barn located on the residence premises, the description and full value of the barn could be added. Even though the structures are separated, one event such as a tornado or a hurricane could wipe out both buildings. 

Note that this endorsement does not affect any covered perils. 

Building Additions and Alterations (HO 04 49) 

This endorsement adds coverage for additions and alterations to rented secondary residences made at the insured’s expense. For example, suppose that Mary has her primary residence insured under a homeowners policy and she also rents a lake house that she occupies on weekends. The insurer has already added the additional residence rented to others (HO 24 70) endorsement covering the liability portion of the exposure. If she wants to add a room to this secondary home that she rents, she can be adequately protected with this endorsement. The location of the building needs to be shown on the schedule along with the appropriate limit. The one stipulation is that the building has to be rented to an “insured” to be used as a residence. 

Personal Property at Other Residences (HO 04 50) 

The unendorsed homeowners form provides only limited coverage for personal property usually located at an insured’s secondary residence. The amount is 10 percent of the personal property limit, or $1,000, whichever is greater. (This is nearly always the 10 percent figure.) This endorsement provides a means for increasing this limit. 

For example, assume the named insured has a homeowners policy with a $120,000 limit for his home in the city. He also has a lake house in which he stores some of his personal property, which is normally located at this secondary location. The personal property limit for his city house is 50 percent of the dwelling amount, or $60,000. Thus, he has only 10 percent of $60,000 or $6,000 in coverage for personal property located at the secondary residence. If he has $11,000 in personal property at the lake house, he could add this endorsement with a limit increase of $5,000, giving him the requisite amount of protection. 

The endorsement schedule requires the following information: (a) the location of the secondary residence, (b) the increase in the personal property limit, and (c) the total personal property limit at this location. 

This endorsement does not affect any of the covered perils on the form. 

Livestock Collision Coverage (HO 04 52) 

This coverage is intended for “gentlemen farmers” with an incidental exposure to the death of farm animals. A gentleman farmer is one who farms primarily for pleasure and not profit. The homeowners policy provides no coverage for livestock collision unless this endorsement is attached. Livestock is defined as cattle, sheep, swine, goats, horses, mules, and donkeys. 

Payment is made for the death of livestock when caused by: 

·         Collision or overturn of a vehicle on which the livestock is being transported; or 

·         Livestock running into or being struck by a vehicle while the livestock is crossing, moving along, or standing in a public road. 

There is no coverage if a vehicle owned or operated by the insured or an employee: 

·         Collides with the vehicle on which the livestock are being transported; or 

·         Strikes any livestock that is crossing, moving along, or standing in a public road. 

Two examples will illustrate. If one of John’s cows is struck by a pickup operated by his neighbor on the highway, livestock collision applies. However, if John is the person who kills the cow while on the highway, coverage is excluded. 

The maximum payable for the death of any one animal is $400. Any horse, mule, or head of cattle less than 1 year old that is killed is counted as one-half head. Thus, a 6-month-old filly that is killed will result in a payment of $200, assuming that coverage applies to the incident. There is no deductible for this coverage. 

Credit Card, Electronic Fund Transfer Card or Access Device; Forgery and Counterfeit Money Coverage (HO 04 53) 

The unendorsed homeowners policy has a $500 limitation on a loss from the fraudulent use of a credit card or electronic fund transfer card or access device, check forgery, and acceptance of counterfeit money. This amount is usually adequate for a loss in connection with a credit card because federal statutes limit the liability in cases like this to $50 per card. (Some banks waive this $50 and do not charge the insured anything.) 

However, the exposure is larger for situations involving electronic fund transfer cards (i.e., ATM or impact cards), forgery, and counterfeit money. For example, if the named insured receives a loan from a pawnbroker and is given $1,000 in counterfeit money, she has only $500 in coverage on her homeowners policy for this loss (assuming she is unable to recover this from the pawnbroker). With this endorsement attached, higher limits are provided. 

Earthquake (HO 04 54) 

The unendorsed homeowners policy does not cover earthquake losses. This endorsement adds this peril for the dwelling, other structures, and personal property. This property coverage is afforded only on a direct physical loss basis; there is no insurance for loss of use or any of the additional coverages. 

Earthquake losses are covered along with any land shock waves or tremors before, during, or after a volcanic eruption. One or more earthquake shocks that occur within a 72-hour period constitute a single earthquake incident. 

The schedule calls for a percentage of limit deductible, subject to a $250 minimum. A base deductible of 5 percent is specified in ISO Homeowners Manual. For a premium credit, the percentage can be increased. No other deductible is applicable. In calculating the dollar amount of the deductible, the 5 percent is applied to either the dwelling or the personal property limit, whichever is greater. 

This endorsement contains three exclusions. First, there is no coverage for any exterior masonry veneer. (Stucco is not considered masonry veneer.) The value of this veneer is deducted before the application of the deductible. This exclusion can be eliminated for a premium charge by checking the appropriate box on the schedule. 

Second, coverage is excluded for any loss resulting directly or indirectly from flood of any nature or tidal wave, whether it was caused by, resulting from, contributed to by, or aggravated by an earthquake. 

Third, the coverage excludes any costs associated with filling land, as the result of an earthquake. 

This coverage does not change any of the property limits of the policy. 

Identity Fraud Expense Coverage (HO 04 55) 

This endorsement provides up to $15,000 in expenses for a loss arising out of identity fraud, subject to a $250 deductible. Identity fraud is the act of knowingly transferring or using, without legal authority, the identification of an insured with the intent to commit, or to aid or abet another party to commit, any illegal activity. This fraud often involves the unauthorized use of the victim’s social security number and other personal identity information. Expenses include notarization costs, lost income, loan application fees, attorney fees, and long distance phone charges. 

According to the Federal Trade Commission, identity fraud or identity theft is the nation’s fastest growing crime and is currently the most common consumer fraud complaint. Identity fraud victims generally incur out-of-pocket costs exceeding $1,000, plus countless personal hours, in resolving their mangled credit ratings. As a result, ISO promulgated this endorsement in 2002. 

The $15,000 limit applies as the direct result of any one identity fraud first discovered or realized during the policy period and subject to a special $250 deductible. (Note that identity fraud is often not detected for 6 months or longer from the time the fraud first occurred.) Any act or series of acts committed by one or more persons, including any persons who aid or abet this action, is considered one identity fraud occurrence, even if a series of acts continues into the next policy period. Thus, an insured cannot receive $15,000 for his expenses during one policy period and another $15,000 for additional expenses during the next policy period for the same identity fraud act or related series of acts. This coverage is additional insurance, beyond any other policy limits. 

This endorsement contains three exclusions. First, there is no coverage for a loss arising out of a business. Coverage should be procured through the appropriate commercial insurance policy. Second, any expense incurred which arises from any fraudulent, dishonest, or criminal act by an insured, including any person aiding or abetting an insured or by a representative of an insured (whether acting alone or in collusion with others), is excluded. For example, if the insured and her spouse are undergoing a vicious divorce and one spouse engages in identity fraud against another, this loss is excluded. Third, any loss other than the six specified expenses is not covered. For example, if the insured requests extra payment due to his mental aggravation arising from the identity fraud, no coverage is provided since this is not within the realm of the covered expenses. 

Two other provisions apply. First, this coverage is subject to a $250 deductible. Second, the named insured must send to the insurer any receipts, bills, or records that verify the claim within 60 days after the insurer’s request. 

Special Loss Settlement (HO 04 56) 

The unendorsed homeowners policy stipulates that if, at the time of the loss, the limit of insurance on the damaged building is 80 percent or greater of the full replacement cost of the building just before the loss, the insurer will pay the cost to repair or replace the property, after applying the deductible and without deduction for depreciation. If the named insured purchases limits below this 80 percent amount, he suffers a coinsurance penalty. This endorsement is used to decrease this 80 percent coinsurance requirement. This is often needed when the replacement cost of the home greatly exceeds its market value and the insurer does not want to write the policy for the 80 percent or greater figure. 

For example, if the replacement cost of an older home in a declining neighborhood is $100,000, but the market value is $50,000, there would be a moral and morale hazard in insuring the home for $80,000 (80 percent of $100,000). This endorsement is used to replace the 80 percent coinsurance requirement with, for example, a 50 percent coinsurance amount. Thus, the purchase of a $50,000 limit meets the coinsurance requirement and prevents any coinsurance penalty. 

Outdoor equipment, non-building structures, grave markers, and personal property are covered for actual cash value. 

Other Members of Your Household (HO 04 58) 

The homeowners policy considers only traditional types of families when it comes to the “insured” definition. An insured means the named insured and residents of the household who are relatives or other persons under age 21 and in the care of any insured. However, there are more nontraditional families. Some of these households might include an unrelated senior living with the named insured in order to share living expenses. It could also include a person of any age or sex living with the named insured to share living expenses or in a personal relationship. With the attachment of this endorsement, such individuals are provided personal property and liability coverage by entering their names in the endorsement schedule. Persons who are already in the insured category—guests, residence employees, tenants, roomers, or boarders—should not be listed in the endorsement schedule. 

For example, Mary is a widow and her friend moves into Mary’s home. Without this endorsement, Mary’s friend would not fall into the insured category. 

This endorsement also insures a person under age 21 who lives with and is in the custody of the person named in the schedule. For example, if John has a live-in girlfriend and this woman has an 18-year-old son, coverage applies to the son as well. 

The named insured is responsible for notifying the insurer within 30 days of a change in the residency, living arrangement, or status of a household member. The named insured is also solely responsible for the payment of the premium applicable to this endorsement and also acts as the representative for the person specified in the schedule. 

The endorsement also expands the coverage for personal property anywhere in the world to the person specified in the schedule. However, this coverage does not increase the personal property limit. 

Assisted Living Care Coverage (HO 04 59) 

This endorsement adds limited insurance coverage for relatives of the insured who regularly reside in an assisted living care facility. More people are relying on the services provided by this type of facility. These facilities assist individuals with their activities of daily living, such as dining, housekeeping, therapy, medical supervision, and social activities. Many of these facilities also allow the residents to keep some of their personal belongings in their room. 

Subject to the limits entered in its schedule, this endorsement covers personal property and liability to individuals named in the endorsement schedule who reside in such facilities and are related to an insured by blood, marriage, or adoption. Additional living expense coverage is provided as well. 

The name of the relative and the name and location of the facility need to be listed on the schedule. In addition, the personal property limit should be specified. As respects personal property, this endorsement provides the following special limits. 

·         $250 for each hearing aid or similar device 

·         $100 for each pair of eyeglasses 

·         $100 for all contact lenses 

·         $500 for all false teeth or dentures 

·         $500 for each medi-alert device (a device often built into a pendant or wristband worn by a handicapped or elderly person that, if activated, calls for emergency assistance) 

·         $250 for all walking aids and devices such as walkers or canes 

·         $500 for each wheelchair 

Scheduled Personal Property Endorsement with Agreed Value 

Loss Settlement (HO 04 60) 

This endorsement provides expanded coverage on specific types of personal property. There are several advantages to an insured in utilizing this endorsement. First, the insurance can be tailored to the particular type of personal property, such as a valuable fur coat. Second, broader coverage can be obtained on an all risks basis, as compared to the named perils provided under the homeowners policy. For example, if John schedules his Rolex watch and accidentally drops it in the garage and this ruins it, coverage applies since this is not an excluded peril for jewelry. Third, the desired amount of insurance can be chosen. In the absence of this endorsement, the homeowners form places restrictive limits on many types of personal property. 

This endorsement affords coverage for nine types of property with specified exceptions. This broadened coverage provides insureds greater protection for their valuable items. This is particularly valuable for jewelry and furs, as these are limited to only $1,500 in coverage for theft under the homeowners form. 

The following types of property can be scheduled. 

·         Jewelry 

·         Furs and garments 

·         Cameras and related items 

·         Musical instruments and related items 

·         Silverware and related items 

·         Golfer’s equipment 

·         Fine arts 

·         Postage stamps 

·         Rare and current coins 

Some of the standard exclusions for scheduled items include: 

·         Wear and tear 

·         Insects or vermin 

·         War 

·         Nuclear hazard 

·         Repairing and restoration of fine arts 

·         Breakage for certain fine arts for certain perils 

·         Property on exhibition 

·         Fading, creasing, denting or disappearance of stamps or coins 

Coverage applies on a worldwide basis. 

The HO 04 60 endorsement provides agreed value loss settlement provisions for any articles of personal property insured under the scheduled personal property endorsement. In other words, it pays the full agreed amount specified in the schedule, regardless of what an appraisal might show. It allows more liberal loss settlement provisions, as compared to the HO 04 61 endorsement, addressed below. 

Scheduled Personal Property Endorsement (HO 04 61) 

This endorsement affords expanded coverage for the following nine types of personal property, subject to certain restrictions. 

·         Jewelry 

·         Furs and garments 

·         Cameras and related items 

·         Musical instruments and related items 

·         Silverware and related items 

·         Golfer’s equipment 

·         Fine arts 

·         Postage stamps 

·         Rare and current coins 

There are several advantages to an insured in utilizing this endorsement. First, the insurance can be tailored to the particular type of personal property, such as a valuable fur coat. Second, broader coverage can be obtained on an all risks basis, as compared to the named perils provided under the unendorsed homeowners policy. For example, if the insured schedules his Rolex watch and accidentally drops it in the garage which ruins it, coverage applies since this is not an excluded peril for jewelry. Third, the desired limits of coverage can be chosen. In the absence of this endorsement, the homeowners form places restrictive limits on many types of personal property. 

Unlike the scheduled personal property endorsement with agreed value loss settlement (HO 04 60), the HO 04 61 does not provide agreed value loss settlement. Agreed value is a provision in which the insurer and insured agree on the value of the particular piece of property and this is specified in the schedule. 

Some of the standard exclusions for scheduled items include: 

·         Wear and tear 

·         Insects or vermin 

·         War 

·         Nuclear hazard 

·         Repairing and restoration of fine arts 

·         Breakage for specified fine arts for certain perils 

·         Property on exhibition 

·         Fading, creasing, denting, or disappearance of stamps or coins 

Coverage applies on a worldwide basis. 

Coverage C Increased Special Limits of Liability (HO 04 65) 

The unendorsed homeowners policy establishes special limits for certain types of personal property. 

Some of the special limits include the following: 

·         $200 on money and related property 

·         $1,500 on securities, accounts, deeds, and letters of credit 

·         $1,500 for loss by theft of jewelry, watches, furs, and precious stones 

·         $2,500 for theft of firearms 

·         $2,500 for theft of silverware and related property 

·         $1,500 on various electronic apparatus 

Any of these limits can be increased via this endorsement. Not all property, however, that is subject to special limits under the homeowners form can have increased limits with this endorsement. The limits on watercraft, trailers, and business property cannot be amended under the HO 04 65 because these types of properties are better insured through other kinds of policies (e.g., boat owners) or more specific endorsements (e.g., home business endorsements). Note that this endorsement does not broaden the covered perils. 

The endorsement schedule requires the increase in the limit to be listed and then the total limit of liability listed, which includes the special limit provided by the unendorsed homeowners form. For example, assume that Mary has $4,000 worth of jewelry in her home and this comprises a large number of items, none of which are worth more than $400. It would not be worth her effort to schedule each of these individual items under the HO 04 61 or the scheduled personal property endorsement with agreed value loss settlement (HO 04 60). Instead, she can simply increase by $2,500 the coverage for theft of jewelry. This $2,500, along with the $1,500 special limit, would give her the desired $4,000 in coverage. 

This endorsement differs from another homeowners endorsement with the same title—the HO 04 66. 

The HO 04 66 endorsement is to be used with the HO 5 form, the HO 4 form with the all risks for personal property (HO 05 24) endorsement attached, and the HO 6 form with the all risks for personal property (HO 17 31) endorsement attached. Conversely, the HO 04 65 is designed for homeowners coverage providing named perils coverage for personal property, such as the unendorsed HO 3. The difference in the two endorsements is that the HO 04 65 provides higher limits for loss by theft of jewelry, firearms, and silverware and related items, whereas the HO 04 66 provides higher limits for loss by theft, misplacing, or losing of these same items. 

Coverage C Increased Special Limits of Liability—For Forms with All Risks Coverage C Protection (HO 04 66) 

The homeowners policy establishes special limits for certain types of personal property. Some of the special limits include the following. 

·         $200 on money and related property 

·         $1,500 on securities, accounts, deeds, and letters of credit 

·         $1,500 for loss by theft of jewelry, watches, furs, and precious stones 

·         $2,500 for theft of firearms 

·         $2,500 for theft of silverware and related property 

·         $1,500 on various electronic apparatus 

Any of these amounts can be increased via this endorsement (provided the insured has all risks coverage for personal property). Not all property, however, that is subject to special limits under the homeowners form can have increased limits with this endorsement. The limits on watercraft, trailers, and business property cannot be amended under the HO 04 66. The rationale for this is that these types of properties are better insured through other kinds of policies (e.g., boat owners) or more specific endorsements (e.g., home business endorsements). 

Note that this endorsement differs from another homeowners endorsement with the same title—the HO 04 65. The HO 04 65 is designed for homeowners coverage providing named perils coverage for personal property. Conversely, the HO 04 66 endorsement is to be used with the HO 5 form, the HO 4 form with the all risks for personal property (HO 05 24) endorsement attached, and the HO 6 form with the all risks for personal property (HO 17 31) endorsement attached. The difference in the two endorsements is that the HO 04 65 provides higher limits for loss by theft of jewelry, firearms, and silverware and related items, whereas the HO 04 66 provides higher limits for loss by theft, misplacing, or losing of these same items. 

Ordinance or Law Increased Amount of Coverage (HO 04 77) 

Governmental jurisdictions frequently implement laws or building codes that concern the rebuilding of a damaged structure. A house built 50 years ago may not meet the building codes in place today. 

The unendorsed homeowners policy covers these additional costs that the named insured might face, but this is restricted to 10 percent of the dwelling limit. This 10 percent figure can be increased via this endorsement. 

To illustrate, assume that Mary has a $120,000 dwelling limit. She suffers a fire loss to the dwelling estimated at $96,000 (80 percent of the value of her $120,000 home). Assume also that her town passed an ordinance stipulating that if over 75 percent of a home is destroyed, it has to be razed and rebuilt. Under the dwelling coverage, only $96,000 will be paid. The $24,000 loss (resulting from the requirement to demolish the undamaged portions of the house) is uninsured, except for the additional $12,000 ($120,000 x 10 percent) provided by the homeowners ordinance or law coverage. With the attachment of this endorsement specifying a 20 percent figure, as compared to 10 percent the form provides, Mary would be protected in full. In other words, she would now have $24,000 (20 percent x $120,000) in ordinance or law coverage and this added to the $96,000 would allow her to rebuild her home, without a financial outlay on her part. 

Note that this coverage only applies if the dwelling is damaged by a covered peril. Also, this additional amount can be used to demolish the undamaged portion of the damaged property and clear the site of resulting debris according to the ordinance. 

Multiple Company Insurance (HO 04 78) 

This endorsement is applicable in cases in which more than one insurer is covering the dwelling and the insurers and named insured agree to this approach. This is normally seen only in very high-value homes. It is attached to the homeowners policy of each insurer. The schedule calls for the percentage of the property limit for each insurer. It also requires that the total limits of liability for the dwelling, other structures, personal property, loss of use, and any additional coverage be specified. Note that the liability coverage normally is not divided. The schedule on the endorsement for the insurer that does not provide this coverage calls for identifying what insurer does as well as the policy number. 

Keep in mind that the type of coverage (e.g., the homeowners form), property endorsements, and deductibles need to be uniform for all homeowner policies in effect. The ISO Homeowners Manual rule 204 stipulates that all property section coverages must be divided and any scheduled personal property coverage may be divided as long as all insurers agree to this. 

The replacement cost coinsurance provision rule (coverage needs to be at least 80 percent of the actual replacement cost of the home) applies to the total amount of coverage of all participating insurers. 

An example will illustrate this endorsement. John owns a $4 million home and various insurers have declined to provide coverage due to the huge exposure involved. However, John’s independent insurance agent arranges for two insurers to cover $2 million each on the dwelling with the attachment of this endorsement. One of the insurers agrees to cover the liability part of this exposure. 

If a $20,000 covered property loss occurs, each insurer will pay one-half of this loss, subject to the deductible, which the insured only has to pay one time. 

Residence Rental Theft (HO 04 80) 

The homeowners policy excludes theft from that part of a residence premises rented by an insured to a noninsured. Thus, any property located in a part of the home rented to a nonrelated boarder would be excluded for this peril. This endorsement provides theft coverage for property in this situation, provided this rental occurs only on an occasional basis. For example, assume that Mary rents out a furnished room in her home to some out-of-town attendees of a major golf tournament. The room includes an expensive television and stereo owned by Mary. If a party, other than a tenant, insured, or boarder, steals these items, coverage applies with this endorsement. Another example of a covered loss situation would be a theft committed by the tenant’s friend. 

Coverage is excluded if the entire residence premises is rented on a regular basis or if there is a separate apartment rented on the premises. 

There are four specific theft exclusions under this endorsement. First, there is no coverage for theft by a tenant, roomer or boarder, members of the tenant’s household, or their employees. Second, there is no theft coverage for money or related items. Third, theft coverage is excluded for property such as securities, accounts, letters of credit, or related items. Fourth, there is no theft coverage for jewelry, watches, furs, or precious stones. 

Actual Cash Value Loss Settlement (HO 04 81) 

This endorsement, applicable to the HO 2, HO 3, and HO 5 forms, amends the loss settlement provision for real property. Under the unendorsed form, the loss settlement for the dwelling and other structures is on a replacement cost basis if, at the time of the loss, the amount of insurance on the damaged building equals at least 80 percent of the full replacement cost of the building. 

However, there may be situations in which the dwelling limit of liability is less than 80 percent of its full replacement cost. For example, assume John owns a home that is estimated to have a replacement cost of $50,000. To avoid suffering a coinsurance penalty, he must purchase at least a $40,000 (80 percent x $50,000) limit. Due to a tight budget, he can only afford a limit of $35,000. Most insurers would refuse to insure for this lower limit, unless this endorsement is attached. Any loss will now be settled on an actual cash value basis, but shall not be settled at more than the amount required to repair or replace the property. 

Note that the term “actual cash value” is not defined in this or any other ISO countrywide form, past or present. Some court cases have interpreted the term to mean “fair market value”: the amount a willing buyer would pay a willing seller if neither were under tight time constraints. But most have upheld the insurance industry’s traditional definition of actual cash value: the cost to replace with property of like kind and quality, less depreciation. Where the courts have differed significantly from one another is on the question of whether depreciation includes obsolescence as well as actual physical depreciation. There is no consensus on this point, and it could be a very important one for some insureds. 

An area in which insurers have differed in handling actual cash value losses concerns the establishing of the depreciation percentage to subtract from the repair or replacement costs. Some courts have frowned upon insurers applying a single arbitrary depreciation percentage off the complete structural repair estimate or replacements costs in a single loss. These are commonly labeled actual cash value or ACV holdbacks until the work is complete. The courts have been more accepting of adjustments that compute separate percentages for each line item and adequately justifying those variations. 

Fire Department Clause (HO 04 85) 

This endorsement imposes a condition on the named insured to purchase and maintain a subscription contract with a privately owned fire department that provides fire protection service for the insured’s residence. 

The insurer normally imposes this endorsement on the named insured for situations in which the dwelling is in a rural and isolated area. If the home is outside the servicing area of a municipal fire department, the exposure to a total fire loss is greatly enhanced. Many insurers avoid insuring a home without fire protection services, unless this endorsement is attached. If the subscription service expires prior to a fire, the insurer would likely deny coverage. 

Windstorm Exterior and Waterproofing Exclusion (HO 04 86) 

As its title suggests, this endorsement eliminates coverage for windstorm or hail damage to exterior paint or water proofing material. 

The perils of windstorm or hail can cause severe damage to paint or waterproofing material applied to the outside of the structure. Many insurers are reluctant to provide coverage for this exposure, particularly for homeowners in hail-prone areas. This endorsement allows the insurer to write the policy without this large exposure. 

Personal Property Replacement Cost Loss Settlement (HO 04 90) 

This endorsement provides for loss settlement for personal property on a replacement cost basis, rather than on an actual cash value basis. Without this endorsement, only the dwelling and other structures are adjusted on a replacement cost basis under the unendorsed HO 3. In addition to personal property coverage, awnings, outdoor equipment, carpeting, and household appliances are also covered on a replacement cost basis. When this endorsement is attached, it is recommended that the personal property coverage be increased from 50 percent of the dwelling limit to 70 percent of this limit to provide adequate protection. 

The following types of property are ineligible for replacement cost coverage: 

·         Antiques, fine arts, paintings, and related articles which cannot be replaced 

·         Memorabilia, souvenirs, and collectible items 

·         Articles not properly maintained in good or workable condition 

·         Outdated or obsolete articles and these are stored or not being used 

The insurer will pay no more than the least of the following amounts: 

·         Replacement cost at the time of the loss 

·         Full cost of repair 

·         Personal property coverage limit 

·         Any applicable special limits specified in the policy 

·         For normally scheduled items, the limit of liability for that described item 

Coverage B—Other Structures Away from the Residence Premises (HO 04 91) 

Structures other than the dwelling are covered under the homeowners on a blanket basis, at 10 percent of the dwelling amount. The key is that these structures have to be located on the residence premises. 

The attachment of this endorsement adds coverage on a blanket basis for other structures not located on the residence premises, if used in connection with these premises. 

For example, suppose that John has his home located on eight acres of land and has a homeowners policy that also covers a barn located on the residence premises. However, he also owns another ten acres of land two miles down the road and this piece of land also has a barn on it. This barn is used in connection with John’s residence premises. Instead of purchasing a separate fire policy, he can simply purchase this endorsement, often for less premium than the fire policy, to cover this additional structure not located on the residence premises. This endorsement does not change the other structures coverage limit; it simply expands the definition of “other structures”. The other structures limit can be increased via the specific structures away from the residence premises (HO 04 92) endorsement. 

Five exclusions are added for other structures away from the residence premises. First, any structure that is used as a dwelling is excluded. Second, any structure capable of being used as a dwelling is excluded. Third, any structure from which any type of business is conducted is excluded. Fourth, any structure used to store business property is excluded. Fifth, any structure that is rented or held for rental to any person that is not a tenant of the dwelling is excluded. 

As respects loss settlement, any loss to other structures will be settled at actual cash value and not at replacement cost. 

Specific Structures Away from the Residence Premises (HO 04 92) 

Structures other than the dwelling are covered under the homeowners form on a blanket basis, at 10 percent of the dwelling amount. The key is that these structures have to be located on the residence premises. The attachment of this endorsement adds coverage on a specific basis for other structures not located on the residence premises, if used in connection with these premises. The endorsement schedule calls for a separate stated limit for this other structure as well as a description and location of it. In contrast, the Coverage B—other structures away from the residence premises (HO 04 91) endorsement expands the definition of “other structures” but does not amend this limit. 

To illustrate, suppose that John has his home located on eight acres of land and has a homeowners policy that also covers a barn located on the residence premises. Assume also that the value of the barn is approximately 10 percent of the home. John also owns another ten acres of land two miles down the road and this piece of land also has a barn on it. This barn is used in connection with John’s residence premises. Instead of purchasing a separate fire policy, he can simply attach this endorsement, often for less premium than the fire policy, to cover this additional structure not located on the residence premises. This endorsement will expand the other structures limit based on the amount specified in the endorsement. 

Five exclusions are added for other structures away from the residence premises. First, any structure that is used as a dwelling is excluded. Second, any structure capable of being used as a dwelling is excluded. Third, any structure from which any type of business is conducted is excluded. Fourth, any structure used to store business property is excluded. Fifth, any structure that is rented or held for rental to any person that is not a tenant of the dwelling is excluded. 

This endorsement affords no coverage for the land that this other structure sits on. 

As respects loss settlement, any loss to other structures covered under this endorsement will be settled at actual cash value and not at replacement cost. 

Actual Cash Value Loss Settlement Windstorm or Hail Losses to Roof Surfacing (HO 04 93) 

Under the Homeowners 3 form, if a hailstorm severely damages an older roof, the loss settlement is on a replacement cost basis. This can result in an over-indemnification of the named insured. Many insurers, particularly in hail-prone areas, are reluctant to insure to full replacement cost on an older roof. This endorsement provides a mechanism to insure the home at replacement cost, but cover the shingles and related roof surfacing, for the peril of windstorm or hail only, on an actual cash value (replacement cost less depreciation) basis. Thus, the named insured assumes a higher participation in a loss, in return for a premium credit. 

Suppose that John owns an older home in Oklahoma, a state prone to violent hailstorms. The roof on the home is more than 20 years old and thus, many insurers are reluctant to insure full replacement cost on it. This endorsement decreases the insurer’s exposure in return for a premium credit to John; this makes John’s home more attractive to insure from the insurer’s perspective. 

Windstorm or Hail Exclusion (HO 04 94) 

Windstorm or hail losses, covered under the unendorsed homeowners policy, can cause severe damage to homes. Many insurers, particularly for homeowners in windstorm or hail-prone areas, are reluctant to cover this exposure. This endorsement allows the insurer to insure the home without covering this large exposure. 

In exchange for a premium credit, the endorsement excludes any loss caused directly or indirectly by windstorm or hail, regardless of any other cause of loss that contributes concurrently or in any sequence to the loss. For example, if heavy thunderstorms accompany the hailstones, the loss is still excluded. 

Homeowners who purchase a homeowners policy with this endorsement attached can often procure windstorm and hail coverage through state windstorm pools. 

Water Back Up and Sump Discharge or Overflow (HO 04 95) 

The unendorsed homeowners policy precludes coverage for losses arising from water or water-borne material which backs up through sewers or drains or which overflows or is discharged from a sump, sump pump, or related equipment. This endorsement affords coverage for this peril, on a direct physical loss basis for up to $5,000, provided the loss is not caused by the negligence of an insured. 

Coverage applies even if such overflow or discharge results from mechanical breakdown. However, this endorsement does not expand the dwelling, other structures, personal property, or loss of use coverage limits. 

There is a special $250 deductible that applies to loss under this endorsement; no other deductible applies. The deductible does not apply to any loss of use claim. 

Home Day Care Coverage Endorsement (HO 04 97) 

Nearly all for-profit home day care operations fall under the “business” definition and are thus subject to numerous exclusions and limitations under the homeowners form. This endorsement provides property and liability coverage for a home day care center operated by an insured on the residence premises. 

Under the endorsement, personal liability and medical payments coverage is provided for the day care operation operated by an insured, which is specified in the endorsement. However, there are two main exclusions for these two coverages. First, there is no coverage for any bodily injury or property damage arising out of the (a) ownership, (b) maintenance, occupancy, operation, use, loading, or unloading of, (c) entrustment by an insured to any party or (d) negligent supervision of any person involving any of the following if they are owned, operated, or hired by or for an insured or employee or used by any insured for instructional purposes: 

·         Draft or saddle animals or vehicles for use therewith 

·         Motor vehicles 

·         Aircraft or hovercraft 

·         Watercraft 

Second, there is no coverage for bodily injury to an employee arising out of the home day care business. Thus, if one of the insured’s day care assistants is injured while working with the children, liability for these injuries is excluded under this endorsement. 

Refrigerated Property Coverage (HO 04 98) 

The unendorsed homeowners policy excludes loss from power failure if the failure takes place off the residence premises. In addition, the accidental thawing of food is not a covered peril for personal property. To illustrate: if John suffers a power outage that originated off-premises, while he was out of town, resulting in $300 in ruined meat, no coverage applies under the unendorsed homeowners policy. This endorsement provides coverage under this circumstance. 

Coverage is provided for up to $500 for personal property stored in freezers or refrigerators on the residence premises. Coverage applies provided that the loss of power is caused by damage to (a) the generating or transmitting equipment, or (b) the mechanical failure of the unit that stores the property. 

Also, coverage is afforded only if the named insured has properly maintained the refrigeration unit. In addition, this endorsement does not expand the personal property limits. 

Sinkhole Collapse (HO 04 99) 

This endorsement adds coverage for loss from sinkhole collapse. A sinkhole collapse is actual physical damage arising out of or caused by the sudden settlement or collapse of the earth supporting such property. This settlement or collapse must result from subterranean voids created by the action of water on limestone or similar rock formations. This peril is particularly prevalent in Pennsylvania and Florida. Earth movement losses, which encompass sinkholes, are excluded under the unendorsed homeowners policy. This endorsement stipulates that the earth movement exclusion does not apply to sinkhole collapse. 

Special Personal Property Coverage—Form H0 4 Only (HO 05 24) 

This endorsement provides all risks coverage on personal property covered under the Homeowners 4—Contents Broad Form (HO 4). Without this endorsement, the HO 4 covers personal property on a named perils basis. 

Additional Insured—Student Living Away from the Residence Premises (HO 05 27) 

This endorsement extends the definition of an insured to include nonresident students, listed in the schedule, under certain situations. This gives the named insured more flexibility, particularly when it comes to older students. Under the homeowners form itself, only a nonresident student under 24 who is a relative of the named insured and who is enrolled in school full-time would be considered an insured under the homeowners policy, provided he was a resident of the household before moving out to attend school. The form also stipulates that only a nonresident student under 21 who is in the care of a resident relative and who is enrolled in school full-time would be considered an insured, provided he was a resident of the household before moving out to attend school. Thus, certain older students would not qualify as insureds, unless added via this endorsement. 

To illustrate: assume John and Mary’s 25-year-old daughter decides to move back in with them. She later, with their help, decides to go to an out-of-state university full-time. With this endorsement, she could be included as an insured by listing her name on the schedule along with her address at the college and the name of the school. There are two requirements in order for the student to be listed on the schedule. First, the student was a resident of the household prior to moving out to attend school. 

Second, the person listed on the schedule is either (1) the named insured’s relative or (2) any person under the age of 21 and in the care of the named insured or a relative who is a resident of the household. Coverage applies to the person specified in the endorsement but only while the person resides at the address shown. 

Owned Motorized Golf Cart Physical Loss Coverage (HO 05 28) 

This endorsement affords property coverage for owned motorized golf carts on an open perils basis. Coverage can be written to include or exclude collision. 

Prior to the introduction of this endorsement, there was no property coverage available for golf carts and only a limited amount of liability protection under the homeowners form. However, there has been a substantial increase in the purchase of golf carts, which extends beyond the golf course. For example, many retirement communities have special paths for golf carts to facilitate transportation within this community. 

There are various exclusions under this endorsement, including the following. 

·         Property section exclusions 

·         Golf carts involved in racing 

·         Golf carts rented to others 

·         Golf carts used to carry people or cargo for a fee 

·         Golf carts used for business except while on a golfing facility 

·         Certain losses to tires or wheels 

·         Losses to the electrical system caused by artificial electricity 

·         Losses due to the cart being worked on, except fire or explosion 

·         Vandalism or malicious mischief, under certain circumstances 

·         Electrical, mechanical, or structural breakdown 

·         Overheating, freezing, dampness of air, or temperature extremes 

·         Wear and tear and related perils 

·         Inherent vice and related perils 

·         Damage due to animals, birds, and vermin except collision with animals or birds 

The loss settlement provision states that the insurer will pay no more than the least of the following: 

·         Actual cash value, 

·         Amount required to repair or replace, or 

·         Applicable property limit. 

Functional Replacement Cost Loss Settlement—Forms H0 2, H0 3, and H0 5 Only (H0 05 30) 

The functional building valuation endorsement is designed to insure an older home whose architectural style has become obsolete or simply unnecessary to the insured’s current use of the house. It addresses situations where neither the actual cash value nor the replacement cost coverage provides a match with the insurance needs. For the purposes of this endorsement, functional replacement cost is the amount which it would cost to repair or replace the damaged building with less costly common construction materials and methods which are functionally equivalent to obsolete, antique, or custom construction materials and methods originally used. 

The endorsement replaces the part of the homeowners loss settlement provision that pertains to the dwelling and other structures. If, at the time of loss, the named insured maintains a dwelling limit equal to 80 percent or more of the functional replacement cost of the building prior to the loss and the named insured contracts for the repair or replacement of the damaged building within 180 days, the insurer will pay, after applying the deductible, the lesser of the following: 

·         Property limit covering the building, or 

·         Necessary amount actually spent to repair or replace the damaged building on a functional replacement cost basis. 

Extended Theft Coverage for Residence Premises Occasionally Rented to Others (HO 05 41) 

The homeowners policy does not provide any theft coverage on landlord’s furnishings. This endorsement provides broad theft coverage for these furnishings, while the residence premises itself or part of it is rented on an occasional basis to others for use as a residence. It affords protection for covered property from that part of the residence premises that are occupied by an occasional tenant, roomer or boarder, members of the tenant’s household, or their employees. 

However, the following types of property are excluded from coverage. 

·         Money, bank notes, bullion, gold, and related metals 

·         Securities, accounts, deeds, evidences of debt, passports, and related items 

·         Jewelry, watches, furs, and precious and semi-precious stones 

For example, assume Mary rents out a completely furnished room to a college student for a 5-week summer session and the student later moves out and steals Mary’s stereo, television, and coins displayed in this room. With the attachment of this endorsement, the homeowners policy would pay for the loss of the stereo and the television, but not the loss to the coins. 

Residence Held in Trust (HO 05 43) 

It is becoming increasingly common for houses to be purchased by trusts. Financial planners are highly recommending these, particularly for their wealthy clients. This endorsement is used when the named insured is a trustee, to provide coverage to the grantor or beneficiary named in the endorsement schedule. 

A trust is considered a property interest held by one person or party (the trustee) at the request of another (the settlor) for the benefit of a third party (the beneficiary). 

An example will illustrate. Mary is a wealthy widow who moves into a nursing facility due to health problems. At the recommendation of her attorney, she decides to set up a trustee as the holder of the legal title to her home for estate tax purposes. In this case, Mary is the settlor, the person who requests the trust. Mary’s daughter, Susan, is the beneficiary/grantor and the occupant of the home. 

The home will legally pass to her after Mary’s death. The local bank is the trustee, the holder of the legal title for the benefit of another, and it owes a fiduciary duty to the beneficiary. (The trustee can also be a separate individual or relative.) The purpose of the trust, in this situation, is to reduce the estate taxes that would otherwise have to be paid by the beneficiary. 

Landlord’s Furnishings—Forms HO 2, HO 3, and HO 5 Only (HO 05 46) 

The homeowners form only provides $2,500 of coverage for the named insured’s appliances, carpeting, and other household furnishings in each room or apartment of the premises that are regularly rented to others. This amount can often be inadequate. With the attachment of this endorsement, this figure can be increased to the amount specified in the schedule. 

The schedule requires a description of the rented unit, the increase in the property limit for that respective unit, and the total amount of the property limit. This last amount will simply be $2,500 added to the increase in coverage. 

Liability Endorsements 

The following endorsements focus primarily on liability coverage. 

Incidental or Low Power Recreation Motor Vehicle (HO 24 13) 

The homeowners liability section excludes most recreational vehicle types of exposures; however, if the vehicle is designed for recreational use off public roads and is not owned by an insured, or the loss occurs on the residence premises, coverage applies. This endorsement expands coverage for vehicles designed for recreational use off public roads and (a) not owned by an insured or (b) owned by an insured as long as the occurrence takes place off an insured location but only if it is a standard type of recreational vehicle and is not a motorized bicycle, moped, or motorized golf cart. The recreational motor vehicle involved cannot have been built or modified to exceed 15 miles per hour on level ground. 

Two examples will illustrate. John has a homeowners policy and owns a four-wheeler. (This is not considered a motorized bicycle.) This all-terrain vehicle is an older and smaller model that is not capable of speeds over 15 miles per hour. The attachment of this endorsement provides John liability coverage if this four-wheeler is involved in an accident either on or off an insured location. 

The next scenario involves an insured who owns a moped. In this case, no coverage applies under this endorsement for any losses off an insured location. This owned moped is specifically listed as a vehicle not covered by this endorsement. Note that liability coverage can be provided under a miscellaneous vehicle endorsement available under the personal auto policy. 

Permitted Incidental Occupancies—Other Residence (HO 24 43) 

This endorsement can be used to expand the insured location definition of the homeowners policy to another residence in which there is incidental business exposure. Assume that Mary is retired but has a part-time business that is occasionally operated out of another residence. This endorsement provides a mechanism to list the description of the business and the locale of the incidental business. 

There is no personal liability or medical payments coverage in the event of bodily injury to any employee arising out of the business described in the endorsement schedule. 

Owned Snowmobile (HO 24 64) 

The homeowners policy excludes liability for any type of snowmobile unless it is not owned by an insured or the loss occurs on an insured location. This limited coverage can be expanded via this endorsement. For example, assume that John owns a home and purchases a snowmobile. His son is operating the snowmobile off John’s property and a neighbor boy is riding in the snowmobile with John’s son. The son negligently causes an accident resulting in an injury to the neighbor boy; with this endorsement, liability coverage is provided. 

Note that the vehicle listed has to be owned by an insured and described in the endorsement schedule. Also, the user or driver of the snowmobile needs to have the permission of the owner in order for the coverage to apply. Note that this endorsement does not afford physical damage coverage to the snowmobile. The named insured needs a separate policy for this protection. 

Additional Residence Rented to Others 1, 2, 3 or 4 Families (HO 24 70) 

The unendorsed homeowners policy provides liability coverage to the insured’s rental unit if it is rented only on an occasional basis and only if it is used as a residence as well as other limited situations. This endorsement expands the coverage to include the location listed on the schedule even if it is continuously rented. Thus, if the insured has a homeowners policy on her primary home, but also owns two rental homes rented out continuously as residences, she has liability coverage with this endorsement if these homes are specified in the schedule. Note that she needs separate dwelling policies for the rental homes to afford the property coverage. 

Business Pursuits (HO 24 71) 

The homeowners policy contains fairly broad business exclusions and limitations under the liability section. This endorsement expands business pursuits liability coverage, and is geared toward occupations such as sales, clerical, and instructional. The endorsement is subject to four key exclusions. 

The first exclusion pertains to any business that is either owned or financially controlled by the insured or by a partnership of which the insured is a member. The second exclusion precludes bodily injury or property damage arising out of any professional liability. The third exclusion precludes any bodily injury coverage to the insured’s fellow employee who is injured during the course of employment. The fourth exclusion pertains to an insured who is a teacher or professor at any school or college. In this exclusion, there is no bodily injury or property damage arising out of the ownership or use of (a) draft or saddle animals, (b) aircraft, (c) hovercraft, (d) motor vehicles, or (e) watercraft. 

Incidental Farmers Personal Liability (HO 24 72) 

This endorsement is designed for an insured that is considered a “gentlemen farmer.” A gentleman farmer is one who farms chiefly for pleasure and not for profit. Thus, this endorsement applies to an individual who does not depend on farming for his primary source of income and for whom the farming exposure is very limited. For example, John has a large home on 15 acres of land. He works in the city but has three horses for recreational purposes and a large garden. This is an incidental farming exposure to the actual dwelling and the attachment of this endorsement provides him liability coverage for this exposure. 

The endorsement schedule lists two options. The first option pertains to farming operations that are conducted on the residence premises described in the declarations. The second option is for farming operations described in the endorsement schedule that are conducted away from the residence premises. The location must be specified in the endorsement schedule. One or both of these options can be selected. In addition, the description of the farming operations needs to be specified. 

Liability Endorsements 

In contrast to this endorsement, the farmers personal liability (HO 24 73) endorsement is geared to farm use beyond incidental exposures. If the named insured has a part-time farm employee, a small cotton crop, an occasional roadside stand, and a few cows and goats, this exposure is more than incidental. In this scenario, the HO 24 73 endorsement is more applicable, as long as the farm operation is not the named insured’s chief source of income. If it is, a farmowners policy is the appropriate coverage. 

Farmers Personal Liability (HO 24 73) 

Farms that fit the homeowners business definition are excluded under the liability section. This endorsement can be added to the homeowners policy to cover farm liability exposures but only if farming is not the insured’s primary occupation. If farming were the named insured’s primary occupation, he needs to purchase a farmowners policy. 

To illustrate: assume John has one part-time farm employee, a small crop of wheat, a roadside stand where he occasionally sells homegrown vegetables out of his large garden, and a few cows and goats. Assume also that John’s primary source of income is a manufacturing job in the city. Under this scenario, the HO 24 73 is the appropriate endorsement, as this farm is beyond an incidental exposure. 

Farm employees employed in violation of the law may be excluded subject to the rules and rates filed by the insurer. This is accomplished via the attachment of the exclusion of farm employees illegally employed (HO 24 96) endorsement, discussed later in this section. 

In contrast to this endorsement, the incidental farming personal liability (HO 24 72) endorsement is geared to farm use of an incidental nature only. If the named insured has a large garden and two horses as his only farming exposure, the HO 24 72 endorsement is more applicable for this type of limited, incidental operation. 

Watercraft (HO 24 75) 

The unendorsed homeowners policy places liability limitations and exclusions on certain types of watercraft. It excludes liability coverage for (a) boats with outboard engines that have more than 25 total horsepower, (b) boats with inboard or inboard-outdrive engines with more than 50 horsepower, or (c) sailing vessels 26 feet or longer. This endorsement expands personal liability and medical payments coverage to these types of watercraft that are specified in the endorsement schedule. 

An example illustrates this endorsement. The named insured buys a 30-foot sailboat and takes some friends out for a sailing excursion. Rough winds turn the boat over, resulting in the drowning of one of the friends. Without this endorsement, the homeowners policy excludes liability protection since the sailboat is 26 feet long or longer. By attaching this endorsement, liability coverage is provided as long as the sailboat is designated in the endorsement schedule. 

The watercraft endorsement schedule consists of two parts. The first part is for watercraft with one or more outboard engines or motors of more than 25 total horsepower, or other watercraft with inboard or inboard-outdrive engines or motors. (The outboard motor boat is one in which the motor can actually be removed from the vessel. The inboard motorboat is one in which the motor is permanently attached to the center of the boat and the propeller is closely connected to it. For inboard-outdrive boats, the motor is also in the center of the boat, but the propeller or outdrive is at the back of the boat. The two are not closely connected as in the inboard boat.) Under this provision, note that the total horsepower should be combined if two or more motors are regularly used together with any single boat owned by an insured. The description and the length of the watercraft should be listed. In addition, the navigation period needs to be specified and the owner of the motor should be listed as well if it is not the named insured. 

The second part of the schedule deals with sailing vessels of 26 feet or more in length, with or without auxiliary power. A description and length of the vessel, the horsepower of the engine (if applicable), and the navigation period need to be listed. 

Personal Injury (HO 24 82) 

The unendorsed homeowners policy liability section covers only “bodily injury” and “property damage.” Thus, any type of non-bodily injury such as personal injury is excluded, without this endorsement. 

This endorsement defines personal injury as an injury arising out of one or more of the following offenses, but only if it occurs during the policy period. These covered offenses, subject to numerous exclusions, include: 

·         False arrest, detention, or imprisonment 

·         Malicious prosecution 

·         Wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling, or premises that a person occupies, committed by or on behalf of its owner, landlord, or lessor 

·         Oral or written publication of any material that slanders or libels any party or disparages a party’s goods, products, or services 

·         Oral or written publication of material that violates a party’s right of privacy 

Miscellaneous Endorsements 

Some endorsements amend both the property and liability coverages. Two of these key endorsements are discussed below. 

Limited Fungi, Wet or Dry Rot, or Bacteria Coverage (HO 04 27) 

This endorsement provides limited first- and third-party coverage for loss due to fungi, wet or dry rot, or bacteria when such loss results from a covered peril that occurs during the policy period. It does not function as an absolute exclusion for claims alleging injury or damage from mold or other types of fungi, but it does restrict the coverage that would apply in the absence of any endorsement. In essence, this restrictive endorsement excludes loss from fungi, wet or dry rot, or bacteria (unless it is the result of fire or lightning) and then adds back limited insurance for it in the additional coverages section. 

A large spike in the frequency and severity of mold-related claims has occurred since 2000. The unendorsed homeowners forms provide fairly broad coverage for a loss arising from mold. Insurers needed an improved way of underwriting and limiting this exposure. As a result, ISO developed this endorsement along with two other mold endorsements (with restrictive provisions) to address this concern. 

Growth of mold may begin or become exacerbated by water damage inadequately repaired. Water damage happens in a variety of ways, including the dousing of a fire, break in a plumbing system, rain entering a building, and sprinkler leakage. The growth in mold claims may partially be due to increasingly airtight building construction (for purposes of improving energy efficiency) and the recirculation of contaminated air. Many professionals in the medical field have confirmed the potential health risks of toxic mold, thereby supporting mold claims. However, the Centers for Disease Control and Prevention contends there is no solid proof that exposure to mold causes serious health risks. There is no consensus among health professionals on this issue. 

Increased limits options are available for these property exposures in the amounts of $10,000, $25,000, and $50,000. The applicable property limit is specified in the endorsement schedule. 

This endorsement is used with the HO 3 and the HO 5 forms. There are two other homeowners endorsements with the same title. The HO 04 26 endorsement is designed for all homeowners forms other than the HO 3 and HO 5. The HO 04 28 endorsement is designed for the HO 4 form with the special coverage (all risk) endorsement attached and the HO 6 form with at least one of the two special coverage endorsements attached. 

Property Remediation for Escaped Liquid Fuel and Limited Lead and Escaped Liquid Fuel Liability Coverages (HO 05 80) 

Homeowners may face exposures from liquid fuel stored in tanks on the premises of their residence premises. Underground storage tanks range in size from 550 to 1,000 gallons, and above ground storage tanks range in size from 100 to 300 gallons. At some point in time, leaks can occur in these tanks. This endorsement, applicable to all homeowners forms except the HO 4 and HO 6, grants coverage for certain property and liability losses from this peril. 

The peril of lead poisoning is an even greater exposure for many homeowners. More than 83 percent of the residential dwellings built in the United States prior to 1980 are estimated to contain some type of lead paint. Lead can also be present in plumbing systems and in the soil. High levels of lead in the bloodstream can be dangerous to humans, particularly young children. This endorsement grants coverage for certain liability losses from this peril. 

There are two other endorsements with the same title. The HO 05 81 endorsement is designed for the HO 4 contents form and the HO 05 82 endorsement is designed for the HO 6 unit owners form. 

Home Business Endorsements 

In the last few years, there has been an increase in the number of home-based businesses. This trend has led to an added group of endorsements that focus on these loss exposures. 

Home Business Insurance Coverage (HO 07 01) 

Most business-related exposures are excluded or limited under the unendorsed homeowners form. This endorsement provides substantive increases in coverage for certain home business loss exposures. 

The home business must meet the following four criteria in order to be eligible for coverage under this endorsement. First, it must be owned by (a) the named insured or (b) a partnership, joint venture, or other organization that is composed only of the named insured and resident family members. 

Second, the business must be operated from the residence premises, which is primarily used and designed for private residential purposes. 

Third, the business can have up to three employees, but cannot produce gross annual receipts over $250,000. Businesses that are larger than this need to be insured under the appropriate commercial coverage forms. 

Fourth, the business cannot involve the manufacture, sale, or distribution of food or personal care products. However, the exception concerns a business involved in the sale or distribution of nationally recognized personal care products manufactured by a reputable company. Therefore, if the insured operates an Avon sales business out of her home, this eligibility rule does not apply. 

This endorsement (informally referred to as HOBIZ) provides business property, business income, extra expense, personal liability, and medical payments coverage. The property section of the schedule requires information about the business name and description, location, limit of liability, increased limit—property away from the residence premises option, and form of business such as individual, joint venture, or partnership. The liability section of the schedule specifies the aggregate limits of liability for products-completed operations and all other business liability as well as the medical payments sublimit. 

There are nine additional endorsements that are used in conjunction with this endorsement. These accommodate unique coverage and situational needs of the home business. The endorsements are as follows. 

·         Additional Insured—Managers or Lessors of Premises Leased to an Insured 

·         Additional Insured—Vendors 

·         Loss Payable Provisions 

·         Exclusion-Personal and Advertising Injury 

·         Liquor Liability Exclusion and Exception for Scheduled Activities 

·         Special Coverage—Spoilage of Perishable Stock 

·         Valuable Papers and Records Coverage Increased Limits 

·         Special Coverage for Valuable Papers and Records 

·         Sections I and II Exclusions for Computer-Related Damage or Injury 

These are all discussed below. 

Additional Insured—Managers or Lessor of Premises Leased to an Insured (HO 07 50) 

This endorsement can only be used in conjunction with the home business insurance coverage (HO 07 01) endorsement. 

The HO 07 50 endorsement applies to a designated person or organization for its liability as the manager, lessor, or owner of designated premises leased to the named insured. This situation arises when a buyer may not be able to arrange financing of a home through traditional means for various reasons. The owner may be anxious to sell the home; thus, he may agree to finance the home himself through a long-term contract. For example, assume John is the purchaser-occupant who has entered into a long-term lease for the purchase of a home. John occupies this dwelling in which he operates his business. However, the title to the home does not pass from the seller (Frank Simpson) until all the terms and payments have been satisfied. In the above scenario, John qualifies for the homeowners, policy based on ISO Homeowners Manual rule 104.A.2. However, Frank still has an interest in this home. The coverage includes Frank as an insured, but only as respects liability arising from the ownership, maintenance, or use of the premises leased to the named insured and listed in the endorsement schedule. 

Assume further that John operates an accounting business in his home and occasionally has clients that visit. (Frank is the seller of the home under the long-term agreement referred to in the previous paragraph.) John’s office is upstairs and a client visits him in his office. The client slips and falls descending the stairs and sues both John and Frank. Both are insureds under this endorsement. 

Additional Insured—Vendors (HO 07 51) 

This endorsement can only be used in conjunction with the home business insurance coverage (HO 07 01) endorsement. 

The HO 07 51 endorsement adds liability coverage for vendors or distributors arising out of the specified vendor’s sale or distribution of the named insured’s products. A vendor is a seller of real or personal property. A distributor is a wholesaler, jobber, or other supplier that sells primarily to retail and commercial enterprises. For example, if Mary operates an Amway business in her home and occasionally uses a vendor to help sell these products, the vendor can be designated as an additional insured. Thus, if a customer claims he is harmed due to a defect in Mary’s product and he sues Mary and the vendor who sells it, the vendor has liability protection, subject to various exclusions, under this endorsement. 

Loss Payable Provisions (HO 07 52) 

This endorsement can only be used in conjunction with the home business insurance coverage (HO 07 01) endorsement. 

The HO 07 52 endorsement provides for situations involving a loss payee or lender’s loss payee under a contract of sale or contract for sale. For example, assume John operates a sole proprietorship in his home and purchases sophisticated computer equipment for this business. He signs a contract for the sale of this property as well as the financing. The computer store has a financial interest in the equipment. Thus, if a major fire hits John’s home, the store could be protected with this endorsement. 

Exclusion—Personal and Advertising Injury (HO 07 53) 

This endorsement can only be used in conjunction with the home business insurance coverage (HO 07 01) endorsement. 

The HO 07 53 endorsement excludes any losses arising from personal and advertising injury. The language of the home business insurance coverage (HO 07 01) endorsement adds personal and advertising injury to the homeowners policy. The HO 07 53 eliminates this extended coverage, often due to the insurer’s request. It amends the Section II—business liability coverage part of HO 07 01 and the Section II—exclusions part. 

Personal injury involves perils such as: 

·         False arrest 

·         Detention 

·         Invasion of privacy 

·         Oral or written publication of materials that slander or libel a person or organization 

·         Oral or written publication of material that violate a person’s right to privacy 

·         Use of another party’s advertising idea 

·         Infringement on copyrights or slogans 

For example, assume the named insured is a freelance political writer who operates the business in his home. Due to the enhanced exposure to libel, the prospective homeowner insurer is unwilling to provide personal injury coverage for this insured. This endorsement could be attached, which would alleviate the insurer’s concern about this particular exposure. 

Liquor Liability Exclusions and Exception for Scheduled Activities (HO 07 54) 

This endorsement can only be used in conjunction with the home business insurance coverage (HO 07 01) endorsement. 

This endorsement excludes liability coverage for bodily injury or property damage related to alcohol in three different circumstances. First, it applies if the named insured sells, manufactures, or distributes alcohol. Second, it applies if the named insured serves alcohol for a charge, regardless of whether he does this for financial gain, or whether a license is required. Third, it applies when the named insured serves alcohol without a charge, if a license is required. 

In addition, the schedule provides a mechanism to make exceptions to the exclusion for certain specified events. The description of the activity and the coverage period, including the date and time, is specified in the endorsement’s schedule. 

Special Coverage—Spoilage of Perishable Stock (HO 07 55) 

This endorsement can only be used in conjunction with the home business insurance coverage (HO 07 01) endorsement. 

The HO 07 55 endorsement provides special or all risks coverage to perishable stock that is specified and described in the schedule. Perishable stock means property on the business location that is (a) maintained under a regulated temperature and humidity for preservation purposes and (b) susceptible to loss if the controlled temperature or humidity conditions change. 

This endorsement provides property coverage for loss due to mechanical breakdown or failure of the refrigerating or humidity controls, while at the business location, or contamination by a refrigerant, while at the business location. 

For example, assume Mary has a small furrier business in which she stores furs for a limited number of customers during the summer. While she is on vacation, the cooling unit in which the furs are stored breaks down. This results in some limited damage to the furs. In this case, property damage coverage is provided with this endorsement. 

Note that this endorsement cannot be used for a business dealing with perishable products that are food-related. A business involved in the manufacture, sale, or distribution of food is not eligible for the home business insurance coverage (HO 07 01) endorsement, and is thus not applicable under the HO 07 55 endorsement either. Thus, it only applies to non-food businesses such as floral shops. A shop such as this has a property loss exposure to its flowers if the cooling system fails. 

Valuable Papers and Records Coverage Increased Limits (HO 07 56) 

This endorsement can only be used in conjunction with the home business insurance coverage (HO 07 01) endorsement. 

The HO 07 01 endorsement provides $2,500 in coverage for direct physical loss to valuable papers and records. In many cases, this can be inadequate. The HO 07 56 endorsement increases the amount of coverage for valuable papers and records. The schedule specifies the increase in coverage as well as the total amount of coverage for this type of property. 

Unlike the special coverage for valuable papers and records (HO 07 57) endorsement, the HO 07 56 does not affect the covered perils themselves. 

Special Coverage for Valuable Papers and Records (HO 07 57) 

This endorsement can only be used in conjunction with the home business insurance coverage (HO 07 01) endorsement. 

The HO 07 57 endorsement extends coverage for valuable papers and records from a named perils basis to all risks coverage up to $2,500. (This is in contrast to the valuable papers and records coverage increased limits (HO 07 56) endorsement, which only allows an increase in the limit of insurance.) Thus, if the named insured desires broader coverage for perils such as mysterious disappearance, he would benefit from this endorsement. This insurance includes the cost to research lost information for valuable papers and records for which duplicates do not exist. However, coverage does not apply to property held as samples or for delivery after the sale or to property in storage away from the residence premises. 

There are three major exclusions that pertain to the expanded coverage for this type of property. First, there is no coverage due to war, nuclear hazard, and governmental action. Second, there is no coverage due to any dishonest acts, except for a carrier for hire. Third, there is no coverage for unauthorized instructions to transfer property to any party or any place. 

Sections I and II Exclusions for Computer-Related Damage or Injury (HO 07 58) 

This endorsement can only be used in conjunction with the home business insurance coverage (HO 07 01) endorsement. 

Endorsement HO 07 01 is silent as respects the Y2K exposure. The HO 07 58 endorsement addresses this exposure and specifies three property section exclusions and one liability section exclusion that pertain only to the business described in HO 07 01. The HO 07 58 endorsement is popularly referred to as the Y2K exclusion endorsement. 

Fortunately, the Y2K problem has not manifested itself; thus, this endorsement has limited use and may eventually be deleted from the ISO Countrywide endorsements.