Proprietary Homeowners Policy Forms

When it comes to additional coverages, the policies offered by insurers that use their own proprietary forms have additional coverages that are generally similar to the foregoing provisions of the ISO HO 2 and HO 3 homeowners policies. There is, however, more variation in these coverages from insurer to insurer than in any other portion of the policy. The variations include both the categories of property subject to limitation, as well as the limits of liability applicable to the limitations. Some policies have no felled trees coverage. Others have more limited collapse coverage. Others do not include homeowners association loss assessment coverage, except as an optional coverage for a premium surcharge. An important additional coverage included in some homeowners policies is sewer back-up coverage. This is often an excluded peril. It is a significant additional coverage that extends to loss caused by water that backs up through sewers and drains. Sewer backups can cause significant losses to both the structure and contents. When this coverage is included additionally, it is a significant broadening of coverage compared with what is afforded by the ISO HO 3 homeowners policy. In short, this is an area where comparison shopping based on coverages provided, rather than price, is well worth your time. As stated, the additional coverages of homeowners policies can be extensive and complex, and include many coverages of which the average policyholder may not be fully aware. This section of your policy is worth taking a few minutes to review. It is also an area in which competitive price quotes can be highly misleading, unless you have specimen copies of the policies under consideration to review and compare. As previously noted, homeowners policies contain exclusions within the basic policy form. It is, however, necessary to review a homeowners policy’s endorsements in order to determine whether any of the exclusions contained in the basic policy form have been modified or any new exclusions have been added to further restrict coverage. Often, when an exclusion contained in the basic policy form has been modified by an endorsement, it can be difficult to figure out what is or is not covered. Before discussing the particular exclusions, a review of the language that begins the exclusions section needs to be discussed. The ISO HO 3 policy first states the broad all-risk insuring agreement and then begins its prefatory statement with respect to the exclusions. This language states the following. ◆ We do not insure against risk of direct physical loss to property described in Coverages A and B. ◆ We do not insure, however, for loss: a. Excluded under Section I—Exclusions. SECTION 1 EXCLUSIONS This introductory phrase refers the reader to the enumerated exclusions at Section I, which comprise twelve categories of exclusions, and which Chapter 7 Exclusions have their own introductory language that is of great significance. This group of exclusions is discussed first here. The introductory language that precedes the exclusions listed in Section I—Exclusions, states: We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss. These exclusions apply whether or not the loss event results in widespread damage or affects a substantial area. The problem this language attempts to address is that of multiple causes of loss, in which some causes are covered causes of loss and others are not. This is referred to in insurance parlance as multiple causation or concurrent causation. The language just quoted states that if any excluded cause of loss is involved in a given loss, no coverage exists. Despite the existence of this type of policy language—often referred to as anticoncurrent causation language—coverage disputes continue to arise in the multiple or concurrent causation context. Courts in the United States have taken a variety of approaches to the issue of multiple causation. The efficient proximate cause standard is by far the approach taken in the majority of jurisdictions in the United States. This efficient proximate causation analysis seeks to discern what the predominant cause of loss is. It may not necessarily be the first cause in the sequence of events leading to the loss, although looking at the triggering cause of loss is frequently a useful analysis. Also, the efficient proximate cause of loss may well not be the immediate cause of loss (the last to occur), although again, that is something that needs to be considered in reaching a reasoned conclusion as to what, in fact, is the predominating cause of loss. Under this efficient proximate cause of loss analysis, if the predominant cause of loss is covered, the loss is covered. The converse is true as well. If the predominant cause of loss is an excluded peril, no coverage exists. Often, the result of this analysis may be that there are actually multiple losses, each of which requires its own efficient proximate cause analysis. 70 The Complete Book of Insurance Questions arising from the issue of the enforceability of anticoncurrent causation language are likely to remain the subject of dispute between insurers and policyholders for the foreseeable future. The exclusions of the ISO HO 3 homeowners policy appear in the following order in the policy. Ordinance or Law This exclusion precludes coverage for three categories of loss. First, it applies to loss from enforcement of ordinances or laws requiring or regulating the construction, demolition, remodeling, renovation, or repair of property, including removal of resulting debris. Now, I know this is confusing—we just went through similar language in the discussion of the additional coverages. Well, the statement of this exclusion is followed by an exception for that amount of coverage that is provided for such losses in the additional coverages parallel section of the policy. Why would the drafter of a policy set things up this way? It is done to assure that when there is a limited amount of coverage afforded for a particular risk, it is made clear that such limited coverage as may be available for that risk is all the coverage that applies to the loss. Further, the final paragraph of the ordinance or law exclusion states that the ordinance or law exclusion applies whether or not the property has been physically damaged. The additional coverage “ordinance or law” coverage exists when there has been a covered physical loss to at least part of the insured premises. Governmental bodies also enact ordinances or laws affecting property owners, the enforcement of which is not dependent on the occurrence of a covered loss. For example, there are commonly ordinances that require minimum set-backs of structures from streets, sidewalks, or adjoining buildings. If your house is in violation of the set-back requirement and you are ordered to remove that portion, you will not be covered. That is why that exclusion is there, and why it has been written to interact with the limited ordinance or law coverage afforded under the additional coverage section. Second, no coverage exists for the operation of ordinances or laws that result in the loss of value to property. This can occur when areas around your property are rezoned, resulting in the value of your property decreasing. (Nobody wants the park at the end of the block turned into a cement factory.) An ecoExclusions 71 nomic loss in the absence of direct physical loss is not the intended subject of the type of policy in question and no coverage exists for this loss of value. Third, the ordinance or law exclusion precludes coverage for loss arising from laws addressing environmental pollution issues. You do not have to have caused any environmental pollution to become a defendant in a pollution cleanup action. Once you are in the chain of title of a contaminated property, you are potentially on the hook under federal and state environmental pollution laws for the cost of remediation (cleaning up) of those pollutants. Your homeowners insurer provides no coverage for the costs of remediating pollution on your property, whether you are the person who caused the pollution or not. Earth Movement The earth movement exclusion is not limited to the peril of earthquake, but also includes: ◆ land shock waves, including tremors associated with volcanic eruptions; ◆ landslides, mudslides, and mudflow; ◆ subsidence or sinkholes; and, ◆ any other earth movement, including earth rising, sinking, or shifting (for example, due to variation or changes in the amount of subsurface water that causes soil to expand or contract). This exclusion applies regardless of whether the earth movement is the product of natural, human, or animal forces, unless fire or explosion results from the earth movement. Fire and explosion are referred to as ensuing losses, for which coverage expressly exists. Water Damage Although coverage for accidental discharges or overflows of water from plumbing, air conditioning, sprinkler systems, or household appliances applies, there are many types of water damage beyond those categories. The water damage exclusions list those types of water damage that are not covered. The flood category includes not only floods, but other similar (and often overlapping) concepts such as: surface water, waves, tidal water, overflow of a 72 The Complete Book of Insurance body of water, or spray from any of these, whether or not driven by wind. Policies will often contain repetitive listings of substantially similar concepts to avoid claims in which, for example, a homeowner may state a flood did not cause the damage but rather an overflow of water. The repetitive list is designed to cover these claims that seek to rely on trivial semantic distinctions to assert coverage for excluded perils. Flood damage falls into the category of losses that are too predictable for insurance in the normal markets. Where floods have occurred, they will reoccur—it is only a matter of time. Flood plains are well-documented by the United States Army Corps of Engineers, including with historical records that permit a reasonable estimate of the frequency of flood in a given area. For coastal areas subject to hurricane flooding, similar information is available. Because the peril of flood is universally excluded, the Federal Flood Insurance Program was established. If you are in a flood area, your agent or broker can help you obtain a separate flood insurance policy. The second category of excluded water damage losses is water or waterborne material (i.e., sewage) that backs-up through sewers or drains or which overflows or is discharged from sump pumps or related equipment. This is a long-standing exclusion that nonetheless comes to the unfortunate surprise of many policyholders each year. While such persons often have recourse against a governmental body or sewer/water agency in the event of such losses, the claims process against a governmental entity can be protracted and difficult. There is, however, something you can do to help prevent such losses. Consult a plumber. If your toilets and drain lines are not equipped with antiback-flow devices, get such devices installed. The third category of excluded water-damage losses is subsurface water that causes damage by exerting pressure on or seeping or leaking through a building, sidewalk, driveway, foundation, swimming pool, or other structure. Problems of this nature are commonly the product of poor siting or construction. The policy excludes coverage for this category of damage because it will recur unless the fundamental problem that created it is corrected. Finally, as with the earth movement exclusion, loss by fire, explosion, or theft that results from water damage is covered as an ensuing loss. Exclusions 73 Power Failure Under the ISO HO 3 policy, no coverage exists for power failure that originates away from the residence premises, unless such power failure results in a loss from a separate covered peril. Neglect Neglect is defined as the neglect of an insured to save and preserve property after the time of loss. When this exclusion applies, it should apply to preclude coverage for the amount of additional damage caused by the insured’s neglect, unless the insured’s neglect was the predominating or triggering cause of the loss in the first place. War The war risk exclusion has been a fixture of insurance policies for generations. In light of recent events, questions have arisen whether loss due to acts of terrorism are subject to the war risk exclusion. The answer is: probably not. One of the subparagraphs of the war risk exclusion provides that war includes: undeclared war, civil war, insurrection, rebellion, or revolution. Undeclared war connotes military action by a foreign nation and probably does not reasonably embrace the concept of acts of terrorism. Acts of civil war, insurrection, rebellion or revolution conceivably could embrace acts of domestic terrorism, but only when committed by organized groups. Nuclear Hazard This exclusion does no more than cross-reference another section that states that nuclear hazard is considered an uninsurable risk. The sole exception to this exclusion is direct loss by fire resulting from the nuclear hazard. Intentional Loss As a general concept, it should come as no surprise that a policy excludes loss arising out of any act an insured commits or conspires to commit with the intent to cause a loss. What may come as a surprise is that in the second paragraph of this exclusion, the policy provides that an intentional loss 74 The Complete Book of Insurance committed by any insured will result in the preclusion in coverage for all insureds. This precludes a so-called innocent co-insured from coverage when another insured commits an intentional loss. While the courts of the fifty states are split on this issue, the majority of jurisdictions hold that no coverage exists for innocent co-insureds for intentional acts of another insured. Governmental Action This exclusion precludes coverage for the destruction, confiscation, or seizure of a dwelling, other structures, or personal property by order of any governmental or public authority. There is a significant exception to this exclusion. When a governmental body acts at the time of a fire to prevent its spread, loss will be covered. In practical terms, this exclusion prevents coverage when a government seizes property based on the arrest or conviction for certain crimes or offenses, such as drug related offenses. Section 1: Concurrent Causation The second group of exclusions applicable to the property coverages of homeowners policies consists of three categories that are of great importance. However, unlike the preceding nine exclusions, this group of three categories of exclusions is not made subject to the anticoncurrent causation language. Effectively, these exclusions are narrower than those we have just discussed. There are a couple additional qualifications to note. First, these exclusions only apply to the dwelling and other structures coverages, not to the contents coverage. This further narrows the scope of these exclusions. Second, if there is an ensuing loss to the dwelling or other structures by a covered peril for which coverage is not precluded by any other policy provision, that ensuing loss is covered. Weather Conditions This exclusion has a substantial qualification and is actually relatively narrow. This exclusion only applies if weather conditions contribute in any way with a cause of loss or an event excluded in any of the exclusions previously disExclusions 75 cussed to produce the loss. Let’s try some illustrative examples. Weather conditions cause a power failure, resulting in loss to contents of refrigerators and freezers. The exclusion applies. Heavy rain causes a hillside to give way, resulting in a mudslide that damages your house or garage. The exclusion applies. Lighting causes a power failure that causes a sump pump to cease operating, resulting in backup or overflow of the sump. The exclusion applies. Acts or Decisions The language of this exclusion tends to strike the average reader as, alternatively, nebulous or opaque. It states: We do not insure for loss to property described in Coverages A or B caused by any of the following… Acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body. The nebulous nature of this exclusion is underscored that there is little, if any, case law interpreting it. Thus, whether it would apply to a particular claim would depend on the facts of the claim and the plain language of the exclusion. As a practical matter, when a policy provision has not been construed by courts, insurers are often reluctant to rely on such a provision as the basis for a denial of coverage, unless the insurer has other and stronger defenses to a claim.

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