Mind The Gap
By Marc McNulty, CIC, CRM
PERSONAL INLAND MARINE
Why the coverage offers a better solution for your clients
Several years ago—in October 2016 to be exact—we explored in this column the unendorsed ISO HO 00 03 and the homeowners special limits of liability that are contained within that policy form. Specifically, we looked at jewelry and offered the following suggestion: When in doubt, encourage your clients to schedule jewelry items on an inland marine policy or jewelry floater as part of their homeowners policy.
While this suggestion still holds true and can still be addressed via one of the four methods we outlined in that column (actual cash value, replacement value, agreed value, and blanket coverage), it might be beneficial for us to take a step back and examine why inland marine coverage is needed in many other instances—even when replacement cost coverage applies to personal property.
The issues and potential solutions
As was established in the October 2016 “Mind the Gap” and as you learned in your pre-licensing coursework, the ISO HO 00 03 (05 11) and HO 00 05 (05 11) homeowners policy forms contain Special Limits of Liability sections under the Coverage C–Personal Property portion of each policy. Specific-ally, limitations are noted for the following:
- $1,500 for loss by theft of jewelry, watches, furs, precious and semiprecious stones.
- $2,500 for loss by theft of firearms and related equipment.
- $2,500 for loss by theft of silverware, silverplated ware, goldware, gold-plated ware, platinum ware, platinum-plated ware and pewterware. This includes flatware, hollowware, tea sets, trays and trophies made of or including silver, gold or pewter.
Note that, in each of these cases, the limitations pertain to losses caused by theft. If your client has property in any of these categories and a loss is caused by something other than theft, then the limitations do not apply and the policy could pay out a higher amount.
Personal inland marine coverage eliminates many … issues on the homeowner policy forms (and endorsements) … . However, there are still a couple of issues to note … .
However, we should also pay special attention to the loss settlement language in each policy. Both forms state that covered personal property losses are settled “at actual cash value (ACV) at the time of loss but not more than the amount required to repair or replace.”
So, now we have two issues at hand. The first is the theft limits that apply to each class of property in the Special Limits of Liability. The second is that the losses will be settled on an ACV basis.
At this point we can see you eagerly waving your hand in the air, ready to share with us a two-part solution. Beaming with pride, you provide us with the following options:
- Add the HO 04 65 (05 11) Coverage C Increased Special Limits of Liability onto the policy to increase the amount of coverage provided; and
- Add the HO 04 90 (05 11) Personal Property Replacement Cost Loss Settlement endorsement onto the policy.
You then nod your head and wait for affirmation that you’re the smartest student in the room (or at least the one who remembers the various ISO endorsements that are available).
Unfortunately, your demeanor starts to change as we respond that, while the effort was commend-able, it won’t address some of the issues that an inland marine policy (or endorsement) would. For example, what if your insured has $10,000 of jewelry along with a baseball card collection? Does your solution properly protect these items?
You think about it and reply that it does. As you previously mentioned, the Special Limits of Liability for losses by theft to jewelry, watches, furs, precious and semiprecious stones can be increased. The HO 04 65 endorsement allows you to specify an increase in the limit of liability for this category by a specific dollar amount, so you can increase it by $8,500 to get a total limit of $10,000.
You then state that losses by perils other than theft won’t be limited by the Special Limits of Liability and finish by saying that the special limits don’t apply to baseball cards because they aren’t mentioned in that section of the policy.
We reply that the answer was well thought-out; however, there are still some gaps that need to be addressed. You look puzzled but eager to learn (which we appreciate).
One issue that wasn’t brought up is that the HO 04 65 endorsement has a limit of $1,000 on it for any one article that falls into the category addressing jewelry, watches, furs, etc. This would be troublesome if your client’s $10,000 worth of jewelry included a $3,000 ring.
Then we move on to the elephant in the room, which is the ineligible property list on the HO 04 90 endorsement. The policy form states that the property listed below is ineligible for replacement cost loss settlement:
- Antiques, fine arts, paintings and similar articles of rarity or antiquity, which cannot be replaced.
- Memorabilia, souvenirs, collectors items and similar articles, whose age or history contribute to their value.
- Articles not maintained in good or workable condition.
- Articles that are outdated or obsolete and are stored or not being used.
For these classes of property, the endorsement refers back to the language found in the homeowners forms: “Any loss will be settled at actual cash value at the time of loss but not more than the amount required to repair or replace.”
You then nod your head, knowing where this is headed. We can tell by the look on your face that you’ve run into one of the classic situations that frustrates both old and new insurance agents—policy limitations/exclusions followed by endorsements/carve-backs followed by more limitations/exclusions. Such is the world of insurance!
A better solution
Personal inland marine coverage eliminates many of the various person-al property issues on the homeowners policy forms (and endorsements) and provides a straightforward coverage option. However, there are still a couple of issues to note when using a form such as the HO 04 61 (05 11)Scheduled Personal Property Endorsement.
First of all, if coins or stamps are covered on a blanket basis, the endorsement pays the cash market value of the loss but “not more than $1,000 on any unscheduled coin collection nor more than $250 for any one stamp, coin or individual article or any one pair, strip, block, series sheet, cover, frame or card.”
Second, this endorsement does not provide agreed value coverage. While this may not seem like an issue if the policy includes replacement cost for personal property (which will then carry through on the HO 04 61), this means if the insurance company can replace a covered item with “one substantially identical to the article lost or damaged,” and the amount to do so is less than the amount of insurance, the insurance company will write a check for the lower amount. That may cause a problem with your client.
Instead, consider using the HO 04 60 (05 11), which is the Scheduled Personal Property Endorsement with Agreed Value Loss Settlement. This endorsement cuts through the loss settlement issues and states that covered property losses are settled as follows:
We will pay, for each article or property designated in the Schedule, the full amount shown in the Schedule which is agreed to be the value of that article or property. At our request, you will surrender that article or property to us if not lost or stolen.
The HO 04 60 also eliminates the limits associated with stamps or coins that are scheduled on a blanket basis.
As always, you most likely have insurance carriers that offer their own proprietary forms for scheduled personal property. Do your homework and learn which of their forms offer the best type of coverage for your clients so that you’ll get in the habit of using them whenever you have new business or rewrite opportunities.
Finally, encourage your clients to keep appraisals on their valuable items up to date. While it’s great for a scheduled personal property claim to be paid out on an agreed value basis, it’s not a good thing if the amount paid is insufficient to replace the item because the amount of coverage was based on an outdated appraisal.
Marc McNulty, CIC, CRM, is a principal at The Uhl Agency in Dayton, Ohio, and has been with the agency since 2001.He divides his time among sales, marketing, technology, and operational duties. You can reach Marc at firstname.lastname@example.org