Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 24 Other Property and Liability Insurance Coverages

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Agenda ISO Dwelling Program Mobile Home Insurance Inland Marine Floaters Watercraft Insurance Government Property Insurance Programs Title Insurance Personal Umbrella Policy

Copyright © 2008 Pearson Addison-Wesley. All rights reserved 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 and there is no coverage for theft or personal liability, unless the policy is endorsed – Dwelling Property 1 (basic form) provides coverage similar to Coverages A-D of the Homeowners Policy Only a limited number of named perils apply to both the dwelling and the personal property – Additional perils can be added for an additional premium 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 All covered property losses are paid on an actual cash value basis, with some exceptions

Copyright © 2008 Pearson Addison-Wesley. All rights reserved ISO Dwelling Program – Dwelling Property 2 (broad form) covers losses to the dwelling and other structures on a replacement cost basis The form also includes a benefit for additional living expense (Coverage E) The list of named perils is expanded – Dwelling Property 3 (special form) covers the dwelling and other structures on an “all-risks” basis All direct physical losses to the dwelling and other structures are covered except those losses specifically excluded Personal property is covered for the same named perils found in the broad form – Endorsements to the dwelling form include: Theft coverage Personal liability supplement

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Mobile Home Insurance Under the ISO program, mobilehome insurance is written by adding an endorsement to an HO-2 or HO-3 policy – The mobilehome must be at least 10 feet wide and 40 feet long, and capable of being towed on its own chassis – The coverage is similar to the HO policy Coverage A covers the mobilehome on a replacement cost basis – An optional actual cash value endorsement can be added to reduce the cost An additional coverage pays up to $500 for the cost incurred in transporting the mobilehome to a safe place to avoid damage when it is endangered by a covered peril, such as a fire

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Inland Marine Floaters An inland marine floater is a policy that provides broad and comprehensive protection on property frequently moved from one location to another – Coverage can be tailored to the specific type of personal property to be insured, e.g., jewelry, coins, or stamps – Desired amounts of insurance can be selected – Broader and more comprehensive coverage can be obtained All direct physical losses are covered unless excluded – Most floaters cover insured property anywhere in the world – Inland marine floaters typically do not impose a deductible

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Inland Marine Floaters The personal articles floater (PAF) is an inland marine floater that provides comprehensive protection on valuable personal property – It can be written as a stand-alone contract Insures certain classes of property on an “all-risks” basis Classes of property that can be covered include jewelry, furs, cameras, fine arts, etc. – It can also be added as a scheduled personal property endorsement to an HO policy Coverage is essentially the same as provided by the freestanding PAF

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Watercraft Insurance The homeowners policy provides limited coverage for boats 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 “all-risks” 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 an uninsured boaters coverage (may be optional)

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Watercraft Insurance Yacht insurance is designed for larger boats – Policies are not standard, but have many common features – Physical damage to the yacht and its equipment is covered on an “all-risks” basis – The policy includes liability coverage, medical expense coverage, and uninsured boaters coverage

Copyright © 2008 Pearson Addison-Wesley. All rights reserved 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 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 The 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 not currently self-supporting, due to losses from Hurricane Katrina and other hurricanes in 2005

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Government Property Insurance Programs – 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 – 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

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Exhibit 24.1 Amount of Federal Flood Insurance under the Emergency and Regular Programs

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Government Property Insurance Programs – There is a 30-day waiting period for new applications and endorsements for flood coverage This prevents property owners from waiting to purchase coverage until an imminent flood threatens their property – The cost of protection is relatively low The average flood insurance policy costs about $400 annually, and is less expensive than interest on federal disaster loans – Criticisms of the federal program include: Policies are heavily subsidized, and many buildings in flood zones incur repeated losses Less than half of the eligible properties participate in the program

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Government Property Insurance Programs 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 Covers property for fire and extended-coverage perils, vandalism, and malicious mischief Seven states have beach and windstorm plans, where property is vulnerable to damage from severe windstorms and hurricanes – A state with a FAIR plan creates a pool or syndicate of private insurers to provide basic property insurance Each insurer in the pool is assessed its proportionate share of losses and expenses based on the proportion of property insurance premiums written in the state

Copyright © 2008 Pearson Addison-Wesley. All rights reserved 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 – The 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 © 2008 Pearson Addison-Wesley. All rights reserved 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 For example, the policy covers liability for personal injury (e.g., false arrest, slander) – A self-insured retention must be satisfied for losses covered by the umbrella policy but not by any underlying contract – The umbrella policy is reasonable in cost

Copyright © 2008 Pearson Addison-Wesley. All rights reserved Exhibit 24.2 Typical Underlying Coverage Amounts Required to Qualify for a Personal Umbrella Policy

Copyright © 2008 Pearson Addison-Wesley. All rights reserved 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 retained limit is either: – The total limits of the underlying insurance or any other insurance available to an insured, or – The deductible stated in the declarations if the loss is covered by the umbrella policy but not by any underlying insurance or other insurance – Exclusions include liability for expected or intentional injury, business liability, and professional services