There are two principal situations in which dwelling forms are used to insure residences. Sometimes owner-occupied properties are in such a state of disrepair--or the housekeeping is so bad--that insurers will not insure them with a homeowners policy. The dwelling form is also used for rental properties where the owner does not live on the premises since these residences are not eligible for homeowners policies.
Historically, the dwelling forms were part of the basis used to develop the homeowners contract. The loss and coverage examples that follow (using fictitious names) will be based on ISO forms.
Mrs. Gramling suffered a house fire loss. The dwelling and garage were damaged. She had a Dwelling Property 1 Basic Form. Coverage was provided for the damage to the dwelling. There also was protection for the fire loss to the garage--with a limitation, however. Only 10% of the dwelling amount could be applied to the garage loss. Unlike the homeowners contract, the dwelling forms limit the amount of insurance applying to the structures on the premises to part of the amount of insurance available for the dwelling. In the event of a total loss to both the dwelling and a garage, the maximum amount recoverable for both is the amount of insurance that is on the dwelling. If there is a structure on the premises that is worth insuring, consider insuring the dwelling for 10% more than what otherwise would be used. By doing that, an insured will have coverage on the structure(s) without reducing the dwelling limit below the desired amount of insurance.
Building laws or ordinances
Mrs. Gramling's house had obsolete wiring and plumbing. In order for her to be able to continue living in the house, the wiring and plumbing had to be brought up to the current building codes. Soon after the bills for the update work were submitted to the insurer, the adjuster informed Mrs. Gramling that there was no coverage for the cost of updating the dwelling.
Coverage for updating a property due to the operation of building laws typically can come from one of two ways. In some states, the insurance commissioner has ruled that all dwelling policies will cover the increased cost of construction due to the operation of zoning ordinances. In these states, there is no need to attach an ordinance or law endorsement.
Should a property be located in a state where the insurance commissioner has not mandated that ordinance or law coverage be on every policy, coverage is provided by endorsing on Ordinance or Law Coverage.
Actual cash value
The amount paid Mrs. Gramling for both the building and contents was based on actual cash value. Many articles and court decisions deal with the concept of actual cash value. I will not try to sort out the various definitions of actual cash value that might apply, except simply to say that the dwelling basic form will pay per the definition of actual cash value that applies at the site of the claim.
Vehicle damage
After the repairs had been made, Mrs. Gramling hit the side of her house while trying to park her car in the garage. The adjuster told her that there was no coverage for vehicle damage if an insured or a tenant caused the loss.
Glass coverage
The basic dwelling form had covered the glass damaged by the fire. Sometime later, vandals broke a number of panes. After submitting the glass loss, Mrs. Gramling was informed that the dwelling contract did not cover vandalism-caused glass losses. Glass damage caused by the other perils on the policy, such as windstorm and explosion, is covered.
A neighbor, Mrs. Potoroski also had a dwelling policy, but hers was a Dwelling Property 2 Broad Form. Mrs. Potoroski sustained a glass loss the same night that Mrs. Gramling did. However, in Mrs. Potorski's case, the insurer paid for the damaged glass.
Burglary and theft
Burglars smashed a door to get into Mrs. Gramling's house and then stole some of her personal property. Again Mrs. Gramling submitted a claim to the insurance company. The adjuster informed her that the basic dwelling form did not have any coverage for burglary or theft losses.
Mrs. Potoroski also sustained some burglary damage and had some items stolen by the burglars. The door and door frame that had been damaged by the burglars were covered by the dwelling broad form. There was no coverage for the items taken by the burglars.
Additional living expense
Under her Dwelling Property 1 Basic Form, Mrs. Gramling submitted a claim for additional living expense. Her claim was denied because there is no additional living expense coverage on the dwelling basic form.
A windstorm damaged Mrs. Potoroski's dwelling. She also had a claim for additional living expense. Her broad form contract responded for the additional living expense claim.
Replacement cost coverage
A driver lost control of his vehicle and plowed into Mrs. Potoroski's house. The driver had no insurance, no assets and no job. As it appeared that there would be no way to collect from him, Mrs. Potoroski submitted a claim to her insurance company. There was coverage for the loss. The only problem would be to decide the amount of the loss. Upon seeing the mess caused by the accident, the adjuster told Mrs. Potoroski to hire someone to do the repair work and then submit the repair bills to the insurance company.
She did so, expecting that the adjuster would contact her to tell her how many of the bills would not be paid and why. For two weeks she did not hear anything and then she got a piece of mail from the insurer. Upon opening it, she was amazed to see that the check was for the total amount of the repair bills, less a deductible! The loss had been paid in full.
Her curiosity got the better of her. She had to find out why the insurance company paid the entire loss. Never before had she collected in full for a loss. The adjuster stated that, on the Dwelling Property 2 Broad Form, the costs of repairs were covered without any deductions because her insurance was equal to or exceeded 80% of the value of the dwelling. The adjuster added that the loss settlement would have been different had she not carried an adequate amount of insurance. Had she been underinsured, the loss settlement would have been either on an actual cash value basis or determined using a complicated formula comparing her amount of insurance to 80% of the replacement cost value of the home.
Ice backup
It had been an unusual winter where Mrs. Smith lived. A blanket of snow lay on everyone's roof. Some days the snow would start to melt and then freeze again. During the course of several weeks, ice formed along the bottom edges of the roofs. For Mrs. Smith, the ice forming, melting, and then refreezing resulted in water backing up under her shingles. When the ice finally did melt, the water under the shingles got into the inside of her house and caused damage. There were watermarks along the ceilings near the outside walls of the dwelling.
Mrs. Smith had a dwelling special form policy. She put in a claim for the water damage, but she was not optimistic about receiving a loss payment. Her neighbors, who had basic and broad form dwelling policies, had submitted claims for similar losses and had already had been denied. Mrs. Smith was surprised when the insurer told her that the damage was covered, so she could have the repairs completed and submit the bills. The dwelling special form provides "risks of direct physical loss" coverage to the dwelling. For the personal property, 16 perils apply. These 16 perils are identical to those found on the dwelling broad form.
Vandalism
A property owner, Mr. Johnson, had a number of windows shot out by vandals. Because he had the special form, the loss was paid because the special form covers loss to building glass. Like the broad form, the special form does not provide any coverage for theft of personal property. It does provide coverage for damage that criminals do to the structures, but there is no coverage for any personal property the criminals take with them.
Market value form
Mr. Jones had a well-preserved older home. Replacement cost was about $250,000. Actual cash value was about $100,000 and market value was $20,000. The basic, broad and special dwelling forms have clauses indicating that the amount of insurance should be based upon either the $100,000 or $250,000 values. He did not want to insure for those larger amounts. His reason was that he feared that he would be accused of arson if a loss occurred and he had an amount of insurance significantly larger than the market value.
Some insureds desire to purchase insurance for an amount close to the market value of the property. The Form 8 is designed to be written for the market value of a property. Its loss payment provisions are based upon a practical way to repair the property. Covered repairs will be based on the current construction methods.
Theft coverage
None of the dwelling forms provides coverage for the theft of personal property. Two of the forms--broad form and special form--provide coverage for damage to the structure(s) done by burglars. Adding dwelling property theft forms can provide theft coverage.
Summary
* There are four dwelling forms.
* The basic dwelling form pays for property losses on an actual cash value basis.
* Replacement cost or actual cash value are two of the ways that the broad and special dwelling forms will settle losses to the structure(s).
* Market value is a settlement basis for structure damage when using the Form Eight.
* The broad and special forms cover burglary damage to the structure(s).
* No theft of personal property is covered by any of the dwelling forms.
* Theft of personal property can be added by endorsement.
* Breakage of building glass (windows are an example) is covered by the broad and special forms.
* Vandalism damage to building glass is not covered by the Dwelling Property 1 Basic Form or the Dwelling Property 8--Modified Coverage Form. *
©COPYRIGHT: The Rough Notes Magazine, 2000