Loss of Use and Additional Coverages

Before discussing the exclusions (Chapter 7) applicable to the property coverages of homeowners policies, there are two additional categories of property coverage grants that need to be discussed. These are: ◆ loss of use coverage and ◆ miscellaneous additional coverages, frequently grouped under a heading in the policy referring to additional coverages or additional protection. LOSS OF USE COVERAGES The loss of use coverages fall into three general categories: ◆ additional living expense; ◆ fair rental value; and, ◆ loss due to civil authority. In general, in order for loss of use coverages to be triggered, there must first be a covered loss to residence premises. In other words, a covered loss of use must be a consequence of a covered direct physical loss to residence premises. Chapter 6 Loss of Use and Additional Coverages Additional Living Expense Coverage Under the ISO HO 2 and HO 3 homeowners policies, if a loss covered under the policy’s dwelling coverage renders the part of the residence premises where the insured resides unfit to live in, the insurer will pay any reasonable increase in living expenses incurred by the insured so that the insured’s household can maintain its normal standard of living. The insurer will make the additional living expense payments for the shortest time required to repair or replace the damage or, if the insured permanently relocates, the shortest time required for the insured’s household to settle elsewhere. These time periods are not limited by the expiration of the policy. In some states, these time periods are made subject to an objective standard. In other words, the shortest time to repair or replace the damage would be the time that an objectively reasonable contractor would require to complete the repair or replacement work. In other states, the time period during which additional living expense payments will be made is held to be governed by what circumstances are or are not within the insured’s control. Such circumstances could range from the unavailability of materials or the unavailability of a qualified contractor, to a dispute with the insurer over coverage for the damage to the residence, which delays the repair work. Fair Rental Value Coverage Fair rental value coverage applies when there is covered damage to that part of residence premises that the insured rents or holds for rental to others that render the premises unfit to live in. The insurer will pay the fair rental value of the premises, less any expenses that do not continue while the premises remain unfit to live in. Such fair rental value payments will be made for the shortest time required to repair or replace the premises. The same issues exist as to whether the shortest time required to repair or replace the damaged premises is governed by a theoretical objective standard or by some other standard that takes into account other factors.

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