Homeowners policy and ISO and standard terms and perils insured against

Today begins the "slow work" of the course. By that I mean that we begin today with the rather pedestrian task of familiarizing ourselves with various types of common insurance policies. It is necessary to know the structure of the policies, their provisions and coverages, their exclusions, the "pressure points" of interpretation of the policies and some important cases construing them. On Wednesday I will ask you to compare the structure of the Sample policy with my own homeowners policy (State Farm) to see how things "match up."

In preparation for today, I asked you to study the Sample Homeowners Policy in Abraham. This mini-essay attempts to do three things: (1) give a brief overview of the development of the homeowners policy; (2) go over the structure of the policy and (3) highlight some areas it might be helpful for you to know about. We will spend the next three or four class sections trying to understand the policy more fully.

The Homeowners Policy

There are eight "standard" policies which you may buy in your capacity of homeowner or renter. The ISO lists them, conveniently as HO-1 to HO-8. I will only speak of a few here. HO-1 was the original and simplest policy, which was to provide indemnification for eleven specified perils. HO-2, developed subsequently, increased that list to 17 (or 18, under one counting) perils. HO-3 is the most common policy in use today, which does not specify covered perils but rather says that any kind of damage is covered except that which is expressly excluded. Hence the development of an "Exclusions" section to most homeowners policies. HO-4 is the renter's policy, HO-6 is for condo owners and HO-8 for those who own historic homes (the issue here is that the policy will not cover replacement costs but only certain repair costs).

The handout I gave in class (on the Hutton, Vincent web page), lists those eleven classic specified perils. They are: (1) fire or lightning; (2) loss of property removed from premises endangered by fire or other perils; (3) Windstorm or hail; (4) Explosion; (5) Riot of civil commotion; (6) Aircraft; (7) Vehicles; (8) Smoke; (9) Vandalism and malicious mischief; (10) Theft; and (11) Breakage of glass constituting a part of the building. Note that most of these eleven are specified in the "Perils Insured Against" section under Coverage C--Personal Property.*

[*By the way, I don't like the organization of the Sample Homeowners Policy given in the casebook. Or, to put it somewhat differently, I think that the Perils Insured Against section should be headed by the 16 or so perils or reference should be made explicitly to the fact that these 16 perils apply both to Coverages A& B and Coverage C. The language as it appears in our policy seems to confine it to Coverage C, though that is not correct.]

HO-2 lists the other covered perils. They are: (1) Falling objects; (2) Weight of ice, snow, sleet; (3) Collapse of building(s) or any part thereof; (4) Sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot water heating system or of applicances for heating water; (5) Accidental discharge, leakage, or overflow of water or steam within a plumbing, heating or air-conditioning system or domestic appliance; (6) Freezing of plumbing, heating and air-conditioning systems and domestic appliances; and (7) Sudden and accidental damage from artifically generated currents to electrical applicances, devices, fixtures and wiring (TV and radio tubes not included). Then, the HO-3 has an "all perils except flood, earthquake, war, nuclear accident and other specified" exclusions. Many of these are also listed in the Perils Insured Against section, with certain limitations of coverage also listed there. So, in the standard form policy the Perils Insured Against begins to look a little like an Exclusions page. This then makes the Exclusions page look a little redundant, though there is much unique material there. The confusion in the policies is probably to be explained because these coverages are probably more frequently claimed. But it does take a lot of patient work to understand the way that the policy is written now.

The Structure of the Policy

I think I will not have time for discussing the "pressure points" of the policy in this essay. Let's conclude with an awareness of the "flow" of the policy. The first thing to notice is that the policy is divided into two large sections: one on property (first-person) coverage and one on liability (third-person) coverage. We will only be concerned with the first at this point. The policy begins with the Declarations page, which is a summary of the coverages available to you. It is followed with a long list of definitions. Then, the "property coverages" section comes next. This is a long section, and describes the structures covered as well as the loss of use that is indemnified. Additional coverages have been added over the years, and you should take some time reading these.

The fourth section is the "Perils Insured Against." In the old policies this would have been the occasion for listing of the 11 or 17 or 18 perils actually covered in the policy. However, with the passage of time and the fact that many of the newer sections were litigated frequently, the policy became more complex [I find it an interesting exercise to see if I can read a provision of an insurance policy and say, 'yep, that was added because of a lawsuit alleging xx or yy.']. The fifth section lists the Exclusions but these seem to stand in awkward relation to the exclusions in the Perils Insured Against section. Finally, there are the Conditions in the policy, whihc means those things that you have to do when you have experienced a loss.

Conclusion

With this basic understanding in place, let's look more closely at various sections of the policy, using the cases as a helpful "flashlight" to illumine it.