Chapter 24 Other Property and Liability Insurance Coverages

Agenda • • ISO Dwelling Program Mobile Home Insurance Inland Marine Floaters Watercraft Insurance Government Property Insurance Programs Title Insurance Personal Umbrella Policy Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -2

ISO Dwelling Program • Some dwellings that are ineligible for coverage under the HO policy can be insured under an ISO dwelling policy – The forms are narrower in coverage – The forms do not include coverage for theft or personal liability without appropriate endorsements Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -3

ISO Dwelling Program • Dwelling Property 1 (Basic Form) provides coverages similar to the Homeowners Policy – Coverages A and B insure the dwelling and other structures – Coverage C covers personal property – Coverage D covers the fair rental value if part of the dwelling is rented – Coverage E can be added to provide coverage for additional living expenses – Only a limited number of named perils apply to both the dwelling and the personal property – All covered property losses are paid on an actual cash value basis, with some exceptions Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -4

ISO Dwelling Program • Dwelling Property 2 (Broad Form) covers losses to the dwelling and other structures on a replacement cost basis – The list of named perils is expanded • Dwelling Property 3 (Special Form) covers the dwelling and other structures on an “open perils” basis • Endorsements to the dwelling form include: – Theft coverage – Personal liability supplement Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -5

Mobile Home Insurance • Under the ISO program, mobile home insurance is written by adding an endorsement to an HO-2 or HO-3 policy – The mobile home must be at least 10 feet wide and 40 feet long, and capable of being towed on its own chassis • The coverages are similar to those found in a homeowners policy Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -6

Mobile Home Insurance – Coverage A covers the mobile home on a replacement cost basis – Coverage B insures other structures – Coverage C insures unscheduled personal property – Coverage D insures for loss-of-use – An additional coverage pays up to $500 for the cost incurred in transporting the mobile home to a safe place to avoid damage when it is endangered by a covered peril, such as a fire – Coverages E and F provide for comprehensive personal liability insurance and medical payments to others Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -7

Inland Marine Floaters • An inland marine floater provides broad coverage on property frequently moved from one location to another and on property used in transportation and communications – Coverage can be tailored to the specific type of personal property to be insured – Desired amounts of insurance can be selected – Broader coverage can be obtained – Most floaters cover insured property anywhere in the world – Inland marine floaters are often written without a deductible Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -8

Inland Marine Floaters • The personal articles floater (PAF) is an inland marine floater that provides comprehensive protection on valuable personal property – This coverage can be written as a stand-alone contract – The PAF insures certain classes of personal property on an “open perils” basis – The coverage can also be added as a scheduled personal property endorsement to an HO policy Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -9

Watercraft Insurance • A boatowners package policy combines physical damage insurance on the boat, medical expense insurance, liability insurance, and other coverages into one policy – Physical damage is covered on an “open perils” basis – The insured is covered for property damage and bodily injury liability arising out of negligent use of the boat – The policy also includes medical expense coverage and may include uninsured boaters coverage Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -10

Watercraft Insurance • Yacht insurance is designed for larger boats – Policies are not standard, but have many common features – Hull coverage insures the yacht and its equipment for property damage on an “all risks” or “open perils” basis – The policy includes liability coverage, medical expense coverage, and uninsured boaters coverage Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -11

Government Property Insurance Programs • Some government insurance programs are necessary because certain perils are difficult to insure privately – Coverage may not be available or may not be affordable Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -12

National Flood Insurance Program • The National Flood Insurance Program provides insurance coverage to property owners in flood-prone areas – Flood insurance is purchased from agents or brokers who represent private insurers – Private insurers sell federal flood insurance under their own names, collect the premiums, and receive an expense allowance – The federal government is responsible for all underwriting losses – The program is self-supporting for the average historical loss year – In 2012, Congress acted to reform and extend the program for five years Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -13

National Flood Insurance Program – Federal law requires individuals to purchase flood insurance if they have federal guaranteed financing to guild, buy, refinance, or repair structures located in special hazard flood areas – Buildings and their contents can be covered by flood insurance if the community agrees to adopt and enforce sound flood control and land use measures – A flood hazard boundary map shows the general areas of flood losses – Residents can purchase limited amounts of insurance at subsidized rates under the emergency portion of the program Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -14

National Flood Insurance Program • A flood is defined in the Standard Flood Insurance Policy as: – A general and temporary condition of partial or complete inundation of two or more acres of normally dry land area or of two or more properties (at least one of which is your property) from overflow of inland or tidal waters, from unusual and rapid accumulation or runoff of surface waters from any source, or from mudflow • There is a 30 -day waiting period for new applications and endorsements for flood coverage Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -15

Exhibit 24. 1 Amount of Federal Flood Insurance under the Emergency and Regular Programs

National Flood Insurance Program • Flood insurance coverage is available in three Standard Policy Forms: – The Dwelling Form is used to insure one- to fourfamily residential buildings and single family dwelling units in a condominium building – The General Property Policy Form is used to insure five or more family residential buildings and non-residential buildings – The Residential Condominium Building Association Policy Form is issued to residential condominium associations on behalf of association and unit owners Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -17

Exhibit 24. 2 Summary of Property Covered under National Flood Insurance Program (NFIP) Copyright

National Flood Insurance Program • The federal flood insurance program faces several critical problems, for example: – The NFIP has a substantial deficit, largely due to Hurricane Katrina in 2005 – Many property owners do not pay premiums that adequately reflect the risk of flooding – NFIP is required to insure multiple loss properties – Operational and management issues plague the program Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -19

National Flood Insurance Program • The Biggert-Waters Act of 2012 extends the NFIP program through September of 2017 • Some key provisions of the Act include: – Rate subsidies on certain properties are phased out over four years – Annual premium rate increases of up to 20 percent are allowed – A reserve fund is created to help fund claims in years when catastrophic losses occur Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -20

FAIR Plans • The Urban Property and Reinsurance Act of 1968 created FAIR plans (Fair Access to Insurance Requirements) – Plans provide coverage to urban property owners who are unable to obtain coverage in the standard market – Plans cover property for fire and extendedcoverage perils, vandalism, and malicious mischief – A building insured under a FAIR plan must meet certain underwriting standards – A state with a FAIR plan creates a pool or syndicate of private insurers to provide basic property insurance Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -21

FAIR Plans • FAIR plans have been established in 32 states and the District of Columbia • Several states have beach and windstorm plans, where property is vulnerable to damage from severe windstorms and hurricanes • Two states established insurance companies to write coverage – In 2012, Florida Citizens Property Insurance Company insured 1. 4 million policyholders Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -22

Title Insurance • Title insurance protects the owner of property or the lender of money for the purchase of property against any unknown defects in the title to the property under consideration – If there is a defect in a title, the owner could lose the property to someone with a superior claim – Examples of defects to the title include an invalid will, incorrect description of the property, and undisclosed liens Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -23

Title Insurance • A title insurance policy provides protection against title defects that have occurred in the past, prior to the effective date of the policy • The insurer assumes no losses will occur • The premium is paid only once when the policy is issued • The policy term runs indefinitely into the future • If a loss occurs, the insured is indemnified in dollar amounts up to the policy limits (usually the purchase price of the property) Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -24

Title Insurance • Consumer advocates argue that the title insurance market has several major defects, including: – Homeowners do not shop around for title insurance – Home buyers are over-charged for title insurance – The title insurance market is flawed by reverse competition – Kickbacks to real estate agents, lenders, and builders are widespread Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -25

Personal Umbrella Policy • The personal umbrella policy provides protection against a catastrophic lawsuit or judgment – Excess liability insurance is provided in amounts from $1–$10 million – Certain minimum amounts of liability insurance must be carried on the underlying contracts – Coverage is broad and includes protection against certain losses not covered by the underlying contracts – A self-insured retention must be satisfied for losses covered by the umbrella policy but not by any underlying contract Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -26

Exhibit 24. 3 Typical Underlying Coverage Amounts Required to Qualify for a Personal Umbrella

Personal Umbrella Policy • Insurers can use a standard Personal Umbrella Policy developed by the ISO – The policy pays for damages in excess of the retained limit for bodily injury, property damage, or personal injury for which the insured is legally liable – The policy covers some additional expenses including legal defense costs – Exclusions include liability for expected or intentional injury, certain personal injury losses, business liability, and professional services Copyright © 2014 Pearson Education, Inc. All rights reserved. 24 -28