Homeowners Coverage Guide, 5th Edition

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Chapter 1

An Overview

Introduction

The modern homeowners policies are package policies that cover dwelling, contents, personal liability, and medical payment exposures. Previously, coverage for these exposures had to be provided through separate contracts, notably fire and comprehensive personal liability policies. The dwelling fire and comprehensive personal liability coverages were combined in the first homeowners policies in the 1950s. Simplified language policies, in much the same format that is in use today, were introduced by the Insurance Services Office (ISO) in the Homeowners ’76 program late in 1975.

The numbering system of the ISO homeowners forms was revised with the 2000 edition. Forms were numbered HO 00 03 10 00, for example, and this numbering system continues into the 2011 edition. The current AAIS homeowners forms were revised in the 2008 edition; forms are numbered HO 0003 09 08. To avoid confusion, we will refer to the forms as either the ISO HO 00 03, or the AAIS HO 0003. We will not include references in this book to either ISO or AAIS prior forms, such as the 1991 ISO HO 00 03 or the AAIS Form 3, edition 2. One further note: AAIS forms previously could be used to insure mobile homes and the homeowners forms included references to mobile homes. This is no longer the case. An endorsement, MH 7800, has been developed to use with forms HO 0001, HO 0002, HO 0003, HO 0004, and HO 0008.

In this edition, we will also reference the Mutual Services Office, Inc.’s homeowners form. The Mutual Services Office provides rating and statistical services, as well as custom forms and manuals, for mutual insurers. The MSO homeowners form is different from the ISO and AAIS forms in that form MPL 01 01 includes the main property coverages, exclusions, and conditions, as well as the liability coverages. The appropriate coverage form must then be attached to this form to provide a complete policy. We will use the MHO 3 01 05 (simply called the MHO 3) in our discussion, since this is the HO 00 03 or HO 0003 equivalent.

Forms Overview

The ISO homeowners program consists of six forms, each designed to meet a different need. There are progressively broader levels of coverage with respect to the perils insured against. The perils common to all forms are: fire or lightning, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, vandalism or malicious mischief, theft, and volcanic eruption. Form HO 00 08 includes these named perils, although coverage for smoke and theft is restricted, as we will see in Chapter 12. Basic homeowners form HO 00 01, which also contained coverage for these perils, has been withdrawn and is no longer supported in the ISO program. AAIS form HO 0008 is extremely limited as to use, and so many of the endorsements previously offered will no longer be available. However, AAIS continues to offer form HO 0001.

The AAIS standard homeowners program includes seven forms, as opposed to ISO’s six. AAIS HO 0008 includes the named perils of fire or lightning, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, sinkhole collapse (a peril not included in the ISO forms except by endorsement or where mandated by law, as in Florida), vandalism, theft, and volcanic eruption. As in the ISO form, coverage for theft and smoke is restricted. Form HO 0001 includes these same named perils.

The MSO program consists of an MHO 2, MHO 3, and MHO 4, as well as an MHO 5 and MHO 6. The perils covered are similar to the equivalent ISO and AAIS forms; while AAIS and ISO cover volcanic eruption, the MSO forms do not.

The second level of coverage is provided in ISO forms HO 00 02, HO 00 04, HO 00 06, and the personal property coverage of form HO 00 03. The equivalent AAIS forms are HO 0002, HO 0004, HO 0006, and the personal property coverage of form HO 0003. The MSO forms are the MHO 2, MHO 4, and MHO 6. This level of coverage incorporates the broad form perils listed previously plus both additional perils not covered in the basic forms, and expanded definitions of some of the basic perils. The added perils are falling objects; weight of ice, snow, or sleet; plumbing discharge; rupture of steam or hot water heating systems, air conditioning systems, or water heaters; freezing of plumbing or similar devices; and damage from artificially generated electricity. There is broader coverage than is provided in the basic forms under the perils of vehicles and, in ISO HO 00 08 and AAIS HO 0001 and HO 0008, for smoke. For example, the ISO HO 00 02—under the named peril for smoke—states that the peril means sudden and accidental damage from smoke, including the emission or puffback of smoke, soot, fumes or vapors from a boiler, furnace or related equipment. This peril does not include loss caused by smoke from agricultural smudging or industrial operations. Contrast this with the ISO HO 00 08, which states that the smoke peril, which includes sudden and accidental damage from smoke, including the emission or puffback of smoke, soot, fumes or vapors from a boiler, furnace or related equipment, but goes on to say that "[t]his peril does not include loss caused by smoke from fireplaces (italics added) or from agricultural smudging or industrial operations." The HO OO 08, which is often used to insure an older home, thus eliminates coverage for smoke from what might be a primary heat source.

The third level of coverage is open perils coverage for dwelling and other structures in special forms ISO HO 00 03, MHO 3, and AAIS HO 0003. Open perils coverage for dwelling, other structures, and personal property is provided by ISO HO 00 05, MHO 5, and AAIS HO 0005. Open perils coverage is also available for unit owners coverage A, which in a condominium includes such items of real property as alterations, appliances, fixtures and the like, and for personal property when ISO endorsements HO 17 32 and HO 17 31 are attached, respectively. This same level of coverage is available in the AAIS program through endorsements HO 7032 and HO 7029. Under the ISO homeowners 2000 program, open perils coverage for personal property became available to a tenant homeowner when endorsement HO 05 24 was added to an HO 00 04; under the AAIS program, HO 2730 is added to an HO 0004. AAIS has also introduced an endorsement, HO 4941, that can be attached to an HO 0003 to provide open perils coverage for personal property. Coverage is broader, however, under the HO 0005.

Perils at this level of coverage are not named, but restrictions on coverage are specified through exclusions, limitations, and exceptions applying to certain causes of loss and categories of property. Loss to insured property not reached by one of these restrictions is covered. This level of coverage, whether homeowners or other property insurance, was traditionally referred to as all risks because the coverage agreements formerly insured against all risks of physical loss (other than those subject to an exclusion). Current editions of homeowners forms delete the word all from this coverage agreement to avoid the implication that coverage is more sweeping than the policy as a whole actually provides.

Eligibility: Homeowners Forms

Policies that include coverage on the dwelling structure itself—ISO forms or AAIS forms—may be issued to the following:

1)    For ISO, the owner-occupant(s) of one- to four-family dwellings used primarily for residential purposes. Some incidental occupancies are permitted as well as certain home-based businesses. For example, an insurance agent may maintain an in-home office although the agency itself is actually located elsewhere. In addition, a one-family dwelling may not be occupied by more than one additional family or two roomers or boarders. In a two-, three- or four-family dwelling, each individual unit may not be occupied by more than two families or one family with two roomers or boarders.

In the AAIS program, owner-occupants of one- to four-family dwellings used principally for private residential purposes, are eligible. Each family unit may be occupied by no more than one family with no more than two boarders or roomers, or two families with no boarders or roomers.

In the MSO program, only a one or two family dwelling may be written on an MHO 2, 3, or 5. The residence premises must be used solely as a private residence, but may include an eligible incidental business activity or home business, provided the premises is used primarily as a residence, and there is no ineligible business on the premises. Additionally, the premises cannot require use of a commercial fire rate. Eligibility rules allow for an additional family or 2 lodgers per unit.

We should take a moment to define what constitutes a roomer or a boarder. These occupants can be the subject of a dispute should a loss involve their personal property. First, a boarder, according to Webster’s New World College Dictionary (Third Edition), is a person who regularly gets meals, or room and meals, at another’s home for pay. This makes such a person different from, say, the twenty-something occupying her parents’ basement because she has no job other than as a part-time dog-walker, but nonetheless is able to contribute a small sum to her parents weekly. Such a person is a member of the insured’s household, whereas the boarder is not.

Next, a roomer. This is much the same as a boarder: a person who rents a room or rooms to live in; lodger (citing Webster again). And rent is a stated return or payment for the temporary possession or use of a house, land, or other property, made, usually at fixed intervals, by the tenant or user to the owner.

Note in these definitions that there is no sense of a relationship between the contracting parties other than a monetary one. They are not other residents of the insured’s household; indeed, they are not part of the household at all. Such persons should carry their own insurance to protect their personal property as well as provide liability protection.

Some home-based businesses (as well as incidental occupancies) are permissible at the residence premises, For more information on both the AAIS and ISO home-based business coverages, see The Home-Based Business Coverage Guide (The National Underwriter Company, 2014 FC&S Online). In the MSO program, any home business should be referred to the insurer for rates and eligibility.

2)    In both AAIS and ISO, when two or more apartment units in a two-, three-, or four-family dwelling are occupied by co-owners, each occupying distinct living quarters with separate entrances, a homeowners policy providing building coverage may be written for only one of the co-owner occupants of the dwelling. The other co-owner’s (or co-owners’) interest, and premises liability, is covered using additional insured endorsement HO 04 41. Other co-owners occupying the building should be covered with an HO OO 04. In the MSO program, endorsement MPL 40 may be attached to cover a co-owner’s interest in a two-family dwelling.

3)    For all programs, occupants who are purchasing the dwelling on a long-term installment basis, such as under a land contract, may be written. Under this arrangement, the seller maintains title to the property until the terms of the contract are completed but does not function as a mortgagee. The seller’s interest is covered through an additional insured endorsement. AAIS rules state that policy issuance is at the option of the company.

4)    For all programs, intended owner-occupants of dwellings that are under construction and intended for private residential use.

5)    For all programs, occupants of a dwelling under a life estate arrangement. ISO includes that the amount of building coverage must be at least 80 percent of the dwelling’s replacement cost. A life estate arrangement is one in which an individual’s interest in a piece of property is limited to the individual’s life. For example, an insured may leave a residence to an elderly relative with the provision that, at the relative’s death, the property reverts to the insured’s children. AAIS rules state that policy issuance is at the option of the company.

6)    For all programs, properties held in trust may be insured. Heretofore, the method of insuring such property was somewhat haphazard and depended upon the insurer’s willingness to write property titled in the name of a trustee, which might well be a banking establishment. AAIS, MSO, and ISO now offer means to insure this property on the standard homeowners forms by attaching endorsements. For more information, see Chapter 13.

Eligibility: Tenant Homeowners

In both the ISO and AAIS programs, the eligibility requirements for ISO HO 00 04 and AAIS HO 0004 contain the same stipulations as to residential use of the premises and incidental occupancies or a home-based business. Up to one additional family, or two boarders or roomers, is allowed.

The MSO form can be written for a tenant in any building, or the co-owner of a two family dwelling.

Tenants of apartments, single family dwellings, or mobile homes are most commonly insured by form 4, but owner-occupants of structures that are ineligible for the other homeowners policies can make use of this form. As noted above, a tenant homeowners form may be used to insure the co-owner of a two-or-more family dwelling when each owner occupies distinct living quarters.

Residences held in trust may not be insured on a tenant homeowners form since real property, not personal property, is often the subject of these arrangements.

Eligibility: Unit Owners

In both AAIS and ISO programs, an owner of a condominium or cooperative unit is eligible to purchase an AAIS form HO 0006 or ISO HO 00 06 provided that the unit is primarily used for a residence and does not house more than one additional family or two boarders or roomers. Incidental occupancies and home-based businesses are permitted here as with the other homeowners forms. Unit owners forms are discussed in more detail in Chapter 12.

MSO rules state that the MHO 6 may be written for the owner occupant or a cooperative or condominium unit.

A condominium unit, since it is real property, may be held in trust. When this is the case, the unit owners forms may be endorsed to cover the arrangement.

Eligibility: Seasonal Property

In the ISO program, an insured with a seasonal or second residence—whether in or out of state—must insure it separately. As an exception to the requirement that homeowners policies must be issued with all the available section I property and section II liability coverages, it is acceptable to write a policy for a second residence containing only section I coverage if the same insurer provides coverage on both the primary and secondary residences. Liability coverage for a secondary residence can be supplied by making a charge under section II of the homeowners policy covering the primary dwelling.

Seasonal or second residences may be insured using the usual homeowners forms. The dwellings must meet eligibility requirements as set forth by individual insurers. When both the primary and secondary or seasonal residences are in the same state, the AAIS rules allow the secondary location to be added by endorsement. Otherwise, a separate policy must be issued. In both programs, final acceptance of a seasonal or secondary residence is determined by the insurer.

In the MSO program, a seasonal dwelling may be insured by listing MPL 72 Seasonal Use in the declarations. This is a good time to note the format of the MSO policies. Many endorsements are preprinted in the policies themselves; however, they are activated—triggered, if you will—by noting them in the declarations. So, for example, an MHO 3 might indicate in the form that the insured dwelling is a seasonal one, but until endorsement MPL 72 Seasonal Use is listed in the declarations, it will not be viewed as a seasonal dwelling by the insurer. (Other endorsements are attached to the policy similarly to AAIS and ISO.)

Eligibility: Farm Property

None of the homeowners programs are designed to be used when more than incidental farming takes place on the residence premises. The ISO program offers optional section II liability coverages for use only when the insured has a farm away from the residence premises and farming is not the insured’s primary occupation, or if the farming conducted on the premises is incidental to the use of the premises as a residence. Under the AAIS program, farming may take place on the residence premises, but farming cannot be the business of the insured. The AAIS program offers a broader spectrum of endorsements than ISO for various aspects of incidental farming activities. The MSO program will insure a dwelling on a farm, but not the farm itself.

Eligibility: Mobile Homes

In the ISO program, mobile homes may be written by attaching endorsements to the homeowners forms. Similarly, in the AAIS program, endorsement MH 7800 may be attached to the homeowners forms to provide coverage. The MSO program attaches the MBO 2, MBO 3, or MBO 4 to form MPL 01 to insure a mobile home. Many insurers do not wish to insure mobile homes. As stated, ISO, MSO, and AAIS forms allow for coverage to be written; however, eligibility requirements should be reviewed before proceeding. For more information, see Chapter 12.

Eligibility: Incidental Occupancy

Dwellings with incidental business occupancy are eligible for homeowners coverage in all programs. However, the premises must be occupied principally as a dwelling (reiterating a primary requirement for homeowners eligibility). For AAIS and ISO, permitted incidental occupancies include, but are not limited to, business or professional offices and private schools or studios that provide instruction in music, dance, or photography. It is possible for one residence premises to have both a permitted incidental occupancy and a home-based business, but it would be advisable to obtain an insurer’s input on this. However, under no circumstances are these endorsements to be used to insure a home day care operation. The MSO program states that certain businesses are eligible, including child care, but rates and procedures are dependent upon the particular insurer. Normal incidental occupancies include an office, school, or studio.

Unless the policy is endorsed, an incidental business occupancy limits property coverage and eliminates premises liability coverage for losses arising out of or connected to the business. Furthermore, coverage B (other structures) does not apply to other structures in which a business is conducted unless coverage is added back by endorsement. One of two endorsements may be added: ISO endorsement HO 04 42, permitted incidental occupancies (residence premises), which is also used if the business is conducted in another structure on the premises; or HO 24 43, permitted incidental occupancies (other residence). AAIS uses endorsement HO 3542 for incidental business on the insured premises, and endorsement HO 6243 for incidental business at another location. As discussed in Chapter 13, these endorsements remove the $2,500 limit that applies to business property on the residence premises and allow the full coverage C personal property limit to apply. The MSO endorsement is MPL 52.

Agent Tip

There are no specific requirements in the homeowners rules about increasing the personal property limit when an incidental occupancy exists, but agents and their clients are well advised to examine the coverage C amount closely to be sure it is sufficient to absorb the additional values of the business furnishings and equipment.

Eligibility: Home-Based Business

It is increasingly common for persons to start businesses in their homes. In these instances, the homeowners must actually own the business and not be telecommuting. Both ISO and AAIS have developed programs to insure various types of businesses. Among the eligible businesses are office services, crafts, and, under the AAIS program, bed-and-breakfast operations. As noted above, the rules allow both a permitted incidental occupancy and a home-based business exposure to coexist; however, this is subject to insurer underwriting guidelines.

The home-based business endorsements will be discussed briefly in Chapter 13. For more information, see The Home-Based Business Coverage Guide (The National Underwriter Company, 2014. FC&S Online).

Limits of Liability

Insurers differ in their underwriting requirements for the minimum amount of coverage they will accept on a dwelling. One way of encouraging business in an insurer’s target market is through rates. For example, the best rates of a given insurer might be for dwellings with replacement values from $150,000 to $350,000. Dwellings with replacement values below or above those amounts will be charged proportionately more for coverage. Another insurer may specialize in dwellings with much higher values; another, much lower. The same is often true for tenant homeowners or for unit owners.

Although the limit for coverage A, dwelling, varies, the percentages for coverages B, C, and D remain constant unless changed by endorsement or—as is sometimes the case—by the insurer as part of its homeowners program. For ISO, these are:

Coverage B–Other Structures

HO 00 02, HO 00 03, HO 00 05, HO 00 08

10% of A, one- and two-family dwelling

5% of A, three- and four-family dwelling

Coverage C–Personal Property

HO 00 02, HO 00 03, HO 00 05, HO 00 08

50% of A, one- and two-family dwelling

30% of A, three-family dwelling

25% of A, four-family dwelling

Coverage D–Loss of Use

HO 00 02, HO 00 03, HO 00 05

30% of A

HO 00 04

30% of C

HO 00 06

50% of C

HO 00 08

10% of A

In the AAIS program, the limits are as follows:

Coverage B–Other Structures

HO 0001, HO 0002, HO 0003

10% of A

HO 0008, refer to company

Coverage C–Personal Property

HO 0001, HO 0002, HO 0003, HO 0008

50% of A, one- and two-family dwelling

30% of A, three- or four-family dwelling

HO 0005

70% of A, one- and two-family dwelling

50% of A, three- and four-family dwelling

Coverage D–Additional Living Costs

HO 0001, HO 0002, HO 0003

30% of A, one or two family dwelling

20% of A, three or four family dwelling

HO 0004

40% of C

HO 0005

30% of A, one or two family dwelling

20% of A, three or four family dwelling

HO 0008

20% of A, one- and two-family dwelling

10% of A, three- and four-family dwelling

HO 0006

40% of C

In the MSO program, the limits are:

Coverage B—Other Structures

MHO 2, MHO 3, MHO 5

10% of A

Coverage C—Personal Property

MHO 2, MHO 3

60% of A

MHO 5

70% of A

Coverage D—Loss of Use

MHO 2, MHO 3, MHO 5

20% of A

MHO 4

20% of C

MHO 6

40% of C

The rules governing ISO form HO 00 06 and AAIS form HO 0006 are slightly different in that coverage A is generally less than coverage C. Remember that, in condominium ownership, the unit owner generally has purchased airspace, with an interest in areas owned in common with other unit owners. For this reason, coverage A usually will apply to items such as wall-to-wall carpeting, wallpaper, lighting fixtures, or built-ins. In the AAIS program there is a limit of 10 percent of the coverage C amount applying to coverage A. In the ISO program, $5,000 is automatically provided in the coverage form. Both programs allow this amount to be increased. Often, too, the condo building’s master policy will respond to losses to real property within units; however, because a condo master policy will often contain a large deductible, a prudent agent will be sure a unit owner’s HO 00 06 policy will respond to a loss under coverage A.

In the MSO program, the full coverage C limit applies to the unit owner’s real property. The limit may be increased.

Both ISO and AAIS programs allow additional insurance to be written on specified structures under coverage B. Coverage C may be increased or, in some cases, reduced to no less than 40 percent of coverage A. The agent will use this option carefully, however. Insureds often accumulate many more possessions than they realize; that is, until a loss. Additional amounts of coverage D also may be written.

Rating Information

The AAIS manual contains program information, submission and rating instructions, loss costs, and explanations of available coverage options. Generally, the rating approach is similar to ISO homeowners rating. There are some differences to note, however. The ISO manual may be used countrywide, with state exception pages included for a particular state. AAIS provides a separate manual for each state.

The AAIS program uses a simplified fire protection classification. Instead of the usual ten classes as in the ISO program, AAIS uses three: protected, partially protected, and unprotected. Protected buildings are those located within five miles of a responding fire department and within 1,000 feet of a fire hydrant. Alternatively, the building may be within 1,000 feet of a year-round water source of at least 3,500 gallons and the responding fire department must have pumper truck capabilities; or the responding fire department must have a pumper/tanker truck capable of carrying at least 3,500 gallons. Partially protected buildings are those located within five road miles of a responding fire department, but the protected class water source requirements are not met. Unprotected buildings are those not meeting any of the above requirements (similar to class 10 in the usual classification system). Of course, this classification system does not mean that dwellings located in any class are automatically eligible for coverage; the underwriting guidelines of each company should be consulted.

ISO includes as part of the rating procedure a building code effectiveness grading. Grades from one to ten are assigned based on adequacy of the community building code and the effectiveness of the community’s enforcement of that code. Policies that cover windstorm, hail, or earthquake exposures in these communities may receive a credit. Complete information is available in the ISO countrywide manual and state exception pages.

The rating procedures differ between ISO and AAIS. (Note, however, that neither program furnishes rates. Both programs include loss costs, which then must be multiplied by the individual company’s multiplier to obtain a final rate.) The ISO rating procedure consists of finding a key premium based on territory; multiplying this by a form factor; multiplying the result by the protection-construction factor; and, finally, multiplying the result by the key factor. The company multiplier is then applied. In the AAIS procedure, the precalculated loss cost, which reflects the territory, form, construction, and fire protection class, is multiplied by the amount of insurance. In both rating procedures any additional premium for optional coverages must be added separately.

The MSO program provides a manual for each of the states in which it does business. Underwriting guidelines, as well as rates, are accessible there.

Chapter 2

What’s Covered

Introduction

Throughout the following discussion we will primarily be referring to the 2008 AAIS homeowners and the 2011 ISO homeowners forms. We will also reference the Mutual Service Office, Inc.’s homeowners form. When referring to specific forms we will always use AAIS HO 0003 and for the ISO forms we will use ISO HO 00 03. The MSO form is MHO 3 01 05, which we will simply call the MHO 3. We will compare and contrast the forms in each program as we discuss the coverages and exclusions. Since many words and terms that are defined in the forms are necessary for complete understanding of the insurance contract, we will begin each chapter with relevant definitions. The ISO and AAIS forms are reproduced in Appendix B (ISO 2011 HO 00 03; ISO 2011 HO 00 02 and HO 00 05, property coverages only; and AAIS 2008 HO 0003 and HO 0005, property coverages only) for ready reference to coverages, exclusions, and provisions. The MSO form MHO 3 is included.

As noted in the preface, the discussion refers to the homeowners forms exclusive of state mandatory and amendatory provisions. Therefore, if uncertain whether a particular provision applies, check the applicable amendatory provisions.

Definitions

The AAIS form uses the term described location to refer to the property covered by the policy:

Described location means the one- to four-family house, the townhouse, or the row house where you reside and which is shown on the declarations as the described location. It includes related private structures and grounds at that location.

However, if the described location is a townhouse or a row house, it includes only related private structures and grounds at that location that are used or occupied solely by your household for residential purposes.

The ISO form uses the term residence premises, which it defines as:

a.    the one-family dwelling where you reside;

b.    the two-, three- or four-family dwelling where you reside in at least one of the family units; or

c.    that part of any other building where you reside; and which is shown as the residence premises in the Declarations.

Residence premises also includes other structures and grounds at that location.

The MSO form, in the glossary, says that insured premises means one of the following, at the described location, as shown in the Declarations (we should clarify that, although the definition refers to a 1 to 4 family house, this definition is used not only for the homeowners forms (MHO 2, MHO 3, and MHO 5, but also for the MSO program’s combination dwellings, which are those dwellings not eligible for the MHO 2, 3, or 5, as well as the mobilehomeowners):

1.    The one- to four- family house you own or the half of a two-family house you own and any related structures and grounds exclusively used by your household.

2.    That part of a row house or townhouse you own and any related structures and grounds exclusively used by your household.

3.    The one- or two- family mobilehome you own or the half of a two- family mobilehome you own and any related structures and grounds exclusively used by your household.

4.    Those parts of the building exclusively used by your household, when you reside in an apartment or similar rented premises, condominium or cooperative unit; or a family unit in a multi-family unit owned by you and you are covered by form MHO 4.

Note that both the ISO and AAIS forms refer to the named insured (you) residing in the dwelling at the described location. In the MSO form, the following is found in the additional policy provisions: Unless otherwise agreed to in this policy by us, it is understood that the covered dwelling is owned and customarily occupied by you and this is the condition of hazard and use that we undertake to insure under this policy. Additionally, in the glossary following the above descriptions of premises, we find that ‘exclusive use’ includes use by others of those portions of such premises otherwise normally occupied by you or your household, while rented by you to others and such rental is permitted by this policy.

According to Webster’s New World Collegiate Dictionary (Third Edition) reside means to dwell for a long time; have one’s residence; live (in or at). Coverage—or lack thereof—for a loss often turns upon whether or not the named insured actually resides at the described premises. A recent case, Schuchman v. State Auto Property and Cas. Ins. Co., 877 F. Supp. 2d 696 (S.D. Ill. 2012), illustrates this. The insureds moved out of the residence shown on the declarations page, and moved into a mobile home on a separate parcel of land. They obtain insurance on the mobile home. When a fire damaged the original residence, the insurer declined to cover the claim, and the court agreed, holding that under Illinois law the term residence premises unambiguously described the one- family residence where you reside. The insureds were not living at the house listed on the Declarations, but in a mobile home at a different location; hence, no coverage.

An interesting difference between the AAIS and ISO definitions is that the AAIS form refers to related private structures. Thus, any structures on the described location should have some relationship to the residence itself—whether a garage, a gazebo, or a garden gate. In many earlier forms, the term for such structures was appurtenant structures; in other words, the structures appertained to the dwelling. The MSO form refers to related structures as well. The ISO form simply states that other structures and grounds at the residence premises location are included within the definition. But because restrictions apply to other structures, such as for business use, there does not appear to be a need to reinforce that the other structures must have some connection to the residence.

Sometimes what the geographic area of a residence premises actually encompasses is open to question. For example, is it a typical quarter acre lot? What about ten or twenty acres of woodland, with a cleared area for the dwelling? Is the residence premises then just the cleared area? The forms do not address this. Therefore, the residence premises may be any size. It is left to the individual insurer, if it so chooses, to make an underwriting determination as to what size premises it wishes to insure. The problem with a large premises is usually not one of property coverage, but a liability issue.

Coverage A, Dwelling

In the ISO forms, coverage A applies to the dwelling, which may be a one- to four-family building. Structures attached to the dwelling fall under the coverage A limit. For example, an attached garage, or a deck firmly secured to the dwelling, is considered part of the dwelling for coverage A purposes. Coverage A also applies to materials and supplies located either on or next to the residence premises and intended for use in construction, alteration, or repair of the dwelling or other structure. In the AAIS form, coverage A applies to the residence–including attached additions and built-in components and fixtures–as well as building materials and supplies located on or adjacent to the described location for use in construction, alteration, or repair of the residence or related private structures. By including built-in components and fixtures within the coverage grant for the dwelling, the AAIS form clarifies that items such as built-in dishwashers and microwaves, or sinks and toilets, are part of the dwelling for coverage purposes. (Loss settlement for appliances, however, is not the same as for the dwelling.) The ISO form does not state this, but custom dictates the same interpretation. Items that are built in or otherwise affixed to the building, such as a furnace or wall-to-wall carpet, are considered part of the dwelling. The MSO form, under coverage A, covers the dwelling and structures attached to it, and building materials and supplies on or at the residence premises for use as part of the dwelling or other related structures covered by the policy. In this the form appears to be more restrictive that the ISO and AAIS, since on or at the residence premises is not the same as on or next to the residence premises.

There is a difference here between the AAIS and ISO in the coverage grant. The ISO forms refer to structures attached to the dwelling, while the AAIS form refers to additions. In theory, these are identical, since Webster’s Collegiate Dictionary defines addition as a part added (as to a building or residential section). Therefore, the addition could be a deck, balcony, solarium, or carport. Both forms cover materials and supplies on or next to the residence premises. It is possible to attach a fence surrounding a yard to a dwelling (how else to give Fideaux room to run?). Does this mean that the fence is thus covered under A? In theory, yes; however, for practical purposes, the insured might wish to claim any loss under coverage B. To illustrate, a fire substantially damages the insured dwelling, and burns most of the fence. Whether the fence is covered under A or not, the loss settlement will not be on a replacement cost basis. (We will discuss loss settlement in Chapter 7.) Why, then, unless coverage B is found to be inadequate, choose to cover the fence under A?

The question sometimes arises as to whether a structure attached to another structure, which is—in turn—attached to the dwelling, also falls under coverage A. The policy language for both forms indicates that this is not the case. The ISO form for coverage A states that the insurer covers the dwelling … including structures attached to the dwelling. For AAIS, coverage A states that it includes additions attached to the residence … The intent is thus that structures which might be attached to structures attached to the dwelling should be covered under coverage B.

Land—including land upon which the dwelling is situated—is not covered except to a very limited extent in the AAIS form. The AAIS form adds that underground water and surface water are not covered property; the ISO form includes water or steam in the list of property not covered. The MSO form states that the insurer will not cover earthworks and land, including land on which any structure is located, nor will it cover water, regardless of location or source.

Some independently filed homeowners forms do, in fact, provide limited coverage for land. Often the land restoration must be necessitated by a covered loss to the dwelling itself, and the cost is usually included within the dwelling limit of liability. For example, if the force of water from fire hoses caused land to wash away from a landscaped berm, these independent forms would respond.

What Is Included under Coverage A

In the southern states, notably Florida, it is common to have a swimming pool with concrete leading from the dwelling to the pool and a screen enclosure over the pool. Does this make the patio/walkway and the enclosure part of the dwelling? The patio/walkway would not be attached to the dwelling, even though it would abut it. Arguing that it would be part of the dwelling would thus lead to the conclusion that the pool should be part of the dwelling and thus insured under coverage A—a conclusion that would hardly be supported by common definitions of dwelling and pool. Often, though, the enclosure itself is firmly attached to the dwelling. A case could then be made for coverage for the enclosure under A.

In the New York case of Porco v. Lexington Ins. Co., 2009 WL 5171735 (S.D. N.Y 2009), the court held a clear space separated the pool from the house, and so the damaged pool was under the coverage for other structures.

In the AAIS form, the use of driveways and sidewalks would make the insured reasonably conclude that a concrete patio would be a similar item and thus insured under coverage B. But with regard to the enclosure, coverage would be under A if the structure is attached to the dwelling. If the structure is not attached to the dwelling, but affixed to the patio, then it would be a permanently installed outdoor fixture, and covered under B.

It is important for insureds, as well as agents, to realize that substantial alterations or additions can affect insurance-to-value. For example, endorsements that offer an increase in coverage A should a loss exceed the policy limit frequently require notification to the insurer when additions or alterations are greater than five percent of the coverage A limit of liability.

Coverage B, Other Structures

ISO coverage B insures other structures on the residence premises set aside from the dwelling by clear space. This includes structures connected to the dwelling by only a fence, utility line, or similar connection. Materials and supplies used to construct, alter, or repair the other structures are also covered if they are located on or next to the residence premises. Land, including land upon which the structure is located, is not covered.

As we noted earlier, Coverage B in earlier editions insured appurtenant structures, a term more specific—and therefore somewhat more restrictive—than other structures. Appurtenant structures are generally understood to be permanently affixed to the land and therefore a part of the realty, title to which passes with the title to the land itself. By this definition, an inground swimming pool, for example, is an appurtenant structure, but an above-ground pool is not. Simplified language homeowners coverage B applies to any unexcluded structure, a term that refers (according to standard dictionary definitions) to the very broad category of something constructed. By this definition, an other structure can include a storage shed or an ornamental rock garden.

AAIS coverage B is similar to that of ISO in that related private structures on the described location are covered. As with the ISO form, structures connected