Doesn’t Special Form Mean Everything has Special Coverage?

Over the last several weeks, I’ve been looking at several policy forms because of different writing and teaching assignments. I’ve been looking especially at property forms. One way that property insurance has evolved over the last 200 years is in the area of covered perils (causes of loss).

By the way, have you ever noticed that when we’re talking about a homeowners’ policy, we talk about “perils insured against” and on a commercial property policy, we talk about “covered causes of loss”? Isn’t that weird? On both policies, we’re talking about what made something happen to a piece of property and whether that cause is covered. For whatever reason, the policy language has developed over the years to drive our language to speak of “perils insured against” or “covered causes of loss”. I’m probably the only person that wonders why it’s like that.

Sorry, diversion over. Back to the point. A few years ago, a had an underwriter in underwriting school who owned several old insurance policies. He showed me a policy that was written for a farm in 1840. Do you know what the perils insured against were? Fire and lightning. That’s it. No wind. No hail. No off premises power failure. OK, there wasn’t an electric company yet, but that’s not the point.

In doing some other research, I discovered an insurance company formed in the Midwest in 1885 that was formed after a state legislature approved a law that legalized the formation of a windstorm insurance company. There wasn’t any windstorm coverage in that state so a new company had to be formed. It was formed because of the huge uninsured losses due to tornadoes the prior two years.

We’re so used to the way that our policies are written today, that we forget (or don’t know) that property insurance didn’t always cover all of these losses that are covered today. As a matter of fact, the way our policies are written is a relatively modern construction. The Standard Fire Policy was last revised in 1943 and that fire policy only had 165 lines of text. Can you imagine that? Today’s HO-3 homeowners’ policy is over 20 pages long.

You might be asking why we’re taking this little trip into insurance history. Thank you, I’m glad you asked. I wanted to dig into something that we need to pay attention to as insurance professionals and I’m talking specifically about the HO-3 policy now. The HO-3 is called the Homeowners’ Special Form. That’s great because insurance people understand what special means.

Special coverage means that there is coverage for direct physical loss or damage to covered property, right? Right! Here’s the problem. The whole form isn’t special coverage. Let me explain. I’m looking at the ISO HO 00 03 05 11 Homeowners Special Form.

Reading:

SECTION I – PERILS INSURED AGAINST

Coverage A – Dwelling and Coverage B – Other Structures

1. We insure against direct physical loss to property described in Coverages A and B.
2. We do not insure, however, for loss: (and it continues to explain some exclusions)

Here’s where you’re finding special coverage. As insurance professionals, we understand that what follows is just the beginning of exclusions. We can talk about why there are so many exclusions later. That’s not the point today.

Let’s get back into our perils insured against, shall we?

Coverage C – Personal Property

We insure for direct physical loss to the property described in Coverage C caused by any of the following perils unless the loss is excluded in Section I – Exclusions.

You caught the difference, right? You’re right, for Coverages A & B, we have special (open perils) coverage. When we start to deal with Coverage C, we have named perils coverage.Time doesn’t allow us to dive into the differences between open peril and named peril coverages. I still have to stop two more places in the policy to get a more full picture here. There’s one spot that opens coverage up (a lot) and another spot that restricts coverage (a lot)

We are moving away from perils insured against and moving into the Additional Coverages. Let’s look at our first additional coverage.

Property Removed

We insure covered property against direct loss from any cause while being removed from a premises endangered by a Peril Insured Against and for no more than 30 days while removed.

Yeah. We broaden coverage here. This is the only time I don’t get a twitch when someone uses the phrase “all risk,” because that’s what it is. Here is the most expansive coverage on the homeowners’ policy and it’s for a very specific reason. Consider hurricane season. We are better than ever at predicting the paths and intensity of hurricanes today. If the homeowner is evacuating their home because a hurricane is coming (while being removed from a premises endangered by a Peril Insured Against), and packs their cargo van full of suitcases, TVs, computers, and guitars from their house, all that stuff is covered very broadly. Why?

The insured is trying to protect their stuff and that makes insurance companies happy. When insurance companies are happy, they get generous with their coverage terms. If they leave their stuff at home, the chances are pretty high that it’ll get damaged there. If they take it with them, there’s at least a shot that nothing will happen to it.

Let’s look one more place in the additional coverages and then we’ll tie all of these thoughts together.

Trees, Shrubs And Other Plants

We cover trees, shrubs, plants or lawns, on the “residence premises”, for loss caused by the following Perils Insured Against:

1. Fire or Lightning;
2. Explosion;
3. Riot or Civil Commotion;
4. Aircraft;
5. Vehicles not owned or operated by a resident of the “residence premises”;
6. Vandalism or Malicious Mischief; or
7. Theft.

You’re right, we talked about this a few weeks ago, but it fits here. We won’t go back through what we already dealt with. Not only are we using named perils for this additional coverage, but we’re using a very specific and restricted set of named perils. This category of property has very limited coverage, just the opposite of what we looked at just a little while ago.

Why bring all of this up? As insurance professionals, we understand that when a policy calls itself a special form, that it doesn’t mean special coverage for all types of property. We are generally aware that the dwelling gets special coverage while the personal property gets named perils. Here’s the question. Do our customers know that? Do you think that they realize that there may be a real (and significant) difference between the covered perils for their home and for their stuff in the home? Do you think that they want to know? Not for nothing, but having that conversation might allow you to find ways to better protect their investment in their stuff and manage their risks.

Topics Profit Loss Homeowners Property