Which coverage form would provide coverage for all incoming and outgoing shipments

HOME OWNERS AND PERSONAL PROPERTY INSURANCE

Introduction

While many people first interact with an insurance agent with respect to automobile insurance, some individuals� first experience with an insurance agent occurs when obtaining a homeowners or renters insurance policy. For some customers, the insurance professional will need to advise regarding the benefits of other property insurance products covering various types of personal property.

In this chapter, we explore homeowners insurance and many types of personal property insurance. We begin with some background regarding the history of property and liability insurance, the two major components of homeowners and personal property coverage.

The History of Property Insurance

The first fire insurance company in the United States was established in 1734 and was called the Friendly Society for the Mutual Insurance of Houses Against Fire. By 1740 this firm was out of business as a result of a fire in Charles Town, South Carolina that wiped out most of the town.

Originally insurance policies were written to cover a single peril. After the disastrous fire of 1740 several other fire companies were formed. These insurers used a risk classification method basing rates on the construction materials used in the building of the dwelling. Thus a building constructed of brick would have a more favorable risk rating than one made of wood.

The early fire policies differed from company to company and from state to state. They were full of conditions and exclusions and often difficult for the average person to understand. The definition of terms varied from company to company and in general lacked uniformity.

If an insured needed additional coverage such as for wind damage or other peril, the additional coverage was written as a separate policy. Often times these additional perils were not even covered by the same company.

Many consumer complaints and court decisions eventually led to the first uniform property insurance policy called the 165 Line New York Standard Fire Policy of 1943.

This was the only insurance policy first standardized by law. This policy became the basis for all property insurance coverage and is still used as a basic form in some states.

Because the standard fire policy covers only the perils of fire, lightning, and removal of covered property from endangered premises, it is never used alone and endorsements are added to cover additional perils.

This extended coverage (EC) includes:

�  Windstorm.

�  Hail.

�  Explosion.

�  Riot.

�  Aircraft.

�  Vehicle Damage.

�  Smoke.

When these endorsements are added a vandalism and malicious mischief endorsement may also be added.

Although the standard fire policy offered basic protection, many insurers argued that a policy which offers broader coverage would be to the benefit of both the insured and the insurer. A policy that covered both property and liability in one policy would do much more to serve the needs of all parties.

Insurance companies felt that they would benefit from such a policy in at least three ways:

�  Decreased adverse selection against the company.

�  Reduction in overall administrative and underwriting costs.

�  Increased policy retention.

In the late 1940�s insurers were permitted by insurance regulators to combine property and casualty perils into one policy. Many formats and combinations of coverage sprung out from this deregulation.

In 1976 the Insurance Service Office (ISO) developed a homeowners program that incorporated the pertinent provisions of the 165-line policy as part of what became known as the �Homeowners 76.�

The �Homeowner 76� simplified the language of the fire contract. The changes made the policy easier to read and created a homeowners policy with five sections:

�  Definitions.

�  Coverage.

�  Perils Insured Against.

�  Exclusions.

�  Conditions.

This original policy was revised in 1982, 1984, and 1991 to arrive at the present format of the policy. Some states have approved a variation of the 1991 format, which was introduced in 1994. A further adaptation was unveiled in 2000, and many states have adopted this most recent variation of the homeowners policy.

Under the ISO Homeowners Program the basic policy covers:

�  A dwelling that is owner occupied.

�  A dwelling where no more than two families and not more than two roomers or boarders per family occupy the dwelling.

�  The owner-occupant has purchased the full homeowners package.

�  The dwelling is used only for residential purposes.

�  A homeowners policy cannot be written on a property to which farm forms or rates apply.

�  The policy cannot be written on a mobile home.

Additional policies have been developed as part of the ISO Homeowners Program in order to provide additional coverages for various circumstances. We will discuss these policies and coverages later in these materials.

Negligence

Distinguished from actual property loss, liability losses are losses incurred by individuals as a result of their actions toward other people or their property. When an individual is required to make financial restitution to another person for loss to them or their property a liability loss has occurred.

In the civil legal system, when an individual violates the rights of another that individual has committed what is known as a tort. A tort can either be intentional or unintentional. Liability insurance provides coverage for unintentional torts.

Negligence is a key factor in determining liability. In order for a person to be liable to another, that individual must have been negligent. Negligence is defined as the lack of reasonable care that is required to protect others from the unreasonable chance of harm.

Four factors must be present in order to establish negligence:

�  There must be a legal duty owed.

Legal duty owed is that obligation that we all have toward another to reasonably protect their rights and property. Within that duty there are several levels of accountability depending on the relationship and conditions.

A person invited to our home is owed the highest degree of care. An individual performing a service in our home is owed a lower degree of care. And a trespasser is owed the lowest degree of care.

�  A breach of that legal duty must occur.

Breach of legal duty occurs when it is established that standard care was not taken, and that lack of precaution caused harm to another individual or their property.

�  There must be �proximate cause.�

The proximate cause is the action that occurred and directly resulted in harm or damage. The action must be continuous and unbroken. If the action is interrupted by an intervening action, then this new action becomes the proximate cause.

�  There must be damages.

The last element in establishing negligence is damage. If no harm came to an individual or their property then there was no negligence and therefore no claim.

When an individual either contributes or assumes some of the potential for harm, the ability to collect damages either is decreased or removed entirely. Assumption of risk is a factor that enters the picture when an individual attends a concert or a sporting event and is injured. By that individual�s presence at that event, that individual has assumed some of the risk involved in attending such an event.

When both parties contribute to the negligence, this is known as �contributory negligence� or �comparative negligence.�  The degree of which each contributed is taken into account in arriving at a payment, or perhaps a non-payment, of damages.

The last factor that comes into play in determining liability for negligence is a statute of limitations. A statute of limitation requires that a suit must be filed within a specified period of time in order to be valid under the law. If the suit has not been filed within the required period of time, then a party cannot be held accountable for negligence which occurred prior to that time period.

The Language of Liability Insurance

The following terms are commonly used when discussing liability and liability insurance:

�  Absolute Liability is a liability imposed by law on those participating in activities that are considered hazardous. Negligence is not a requirement for payment of damages in the event of absolute liability.

�  Damages are a monetary compensation awarded by a court to an injured party.

�  Declarations are that section of an insurance contract that shows who is insured, what property or risk is covered, when and where the coverage is effective and how much coverage applies to loss.

�  Deductible is the dollar amount the insured must pay on each loss to which the deductible applies.

�  Defense Costs are the legal expenses that must be paid by the insurer to defend suits brought against the insured.

�  Degree of Care is the extent of legal duty owed by one person to another.

�  Indemnity is the principle of insurance that provides that when a loss occurs, the insured should be restored to the proximate financial condition he or she occupied before the loss occurred.

�  Occurrence is a loss that occurs over a specific time and place or over a period of time.

�  Post-judgment interest is interest accruing on a judgment after an award has been made, but before payment is made by the insurance company.

�  Pre-judgment interest is interest awarded to compensate a third party for interest he or she might have earned if compensation had been received at the time of injury or damage, rather than at the time of judgment.

�  Proximate Cause is an action that, in a natural and continuous sequence, produces a loss.

�  Punitive Damages are damages intended to punish the defendant in an effort to discourage others from behaving in the same manner.

�  Service Bureau is an organization that gathers, pools, and analyses statistics from its member insurance companies to establish loss costs used in determining insurance rates.

�  Supplementary Payments Coverage is a coverage that provides extra coverage over and above the insured�s limit of liability. Commonly included are defense costs, first aid expenses, bond premiums, and post-judgment interest.

�  Third Party is the individual receiving the award in a liability case.

�  Tort is a civil wrong for which monetary damages are paid.

�  Vicarious Liability is liability that a person or business incurs because of the actions of others for whom they are responsible. For example, vicarious liability may cause a loss to be incurred as a result of the actions of family members or employees of the insured.

Summary

Concepts of both property insurance and liability insurance combine to form the backbone of Homeowners and Personal Property Insurance. The homeowner seeks protection from both loss of property and possible liability to third parties. With this background regarding property insurance and liability insurance, we now begin to examine Homeowners Insurance in more detail.

Homeowners Insurance � Introduction

Coverage and Limits of Liability

The front page or the �Declaration Page� of the homeowners insurance policy shows exactly what is covered and for how much.

The front page contains the following information:

�  Name of the Insurance Company and address.

�  Name and address of the insured and address of the insured property.

�  The agent�s and agency name and address.

�  Policy number.

�  Policy period showing the effective date, expiration date, and time.

�  The coverage and premium breakdown:

�  Property Coverage � Section I:

�  Dwelling                         Limits of Coverage

�  Detached Structures     Limits of Coverage

�  Personal Property         Limits of Coverage

�  Loss of Use                   Limits of Coverage

�  Section I Deductible      Amount of Deductible

�  Liability Coverage � Section II

�  Personal Liability,

Each occurrence           Limits of Coverage

�  Medical Payments to others,

Each person                  Limits of Coverage

�  Policy forms and endorsements and charges.

�  Rating information.

�  Mortgagee�s name and address.

�  Signature of insurance company officer.

Types of Homeowners Policy Forms and Their Coverages

There are several standard policies available and they contain a standardized numbering system throughout the United States, as follows:

�  HO-1:  Basic Form for Homeowners.

�  HO-2:  Basic Form for Homeowners with similar coverage available for mobile home owners.

�  HO-3:  Special Form for Homeowners.

�  HO-4:  Renters� or Tenants� Insurance.

�  HO-5:  Comprehensive Form for Homeowners.

�  HO-6:  Condominium Unit owners insurance.

�  (There is no HO-7 Form)

�  HO-8:  Market Value or Older Home Form for Homeowners.

The �HO� stands for Homeowners and the number following that designates the specific policy package.

HO-1 and HO-2 Policy

These two forms are referred to as �Named Peril Policies� and in these two forms the same perils are applied to the dwelling and personal property coverage. HO-1 covers the insured against the following losses:

�  Fire and lightning.

�  Removing damaged property.

�  Explosion.

�  Hail or windstorm.

�  Smoke damage.

�  Riots and civil commotion.

�  Damage to dwelling caused by vehicles or aircraft.

�  Theft.

�  Breakage of glass.

�  Malicious mischief or vandalism.

HO-1 is becoming less and less popular due to the fact that each of the above losses is usually limited by a paragraph of numerous exclusions. Although the cost of HO-1 is low, the old adage still applies: �You get what you pay for.� 

HO-2 covers the following losses:

�  Fire and lightning.

�  Removing damaged property.

�  Explosion.

�  Hail and windstorm.

�  Riot/civil commotion.

�  Damage to dwelling caused by vehicles or aircraft.

�  Damage from smoke that is sudden or accidental.

�  Falling objects.

�  Weight of ice, sleet or snow.

�  Theft.

�  Breakage of glass.

�  Collapse of building.

�  Accidental ruptures of hot water heater or steam heater.

�  Accidental overflow of water from a plumbing appliance.

�  Freezing of heating, air conditioning or plumbing appliances.

�  Accidental injury from electrical currents artificially generated.

The HO-2 form gives a more �Broad form� of coverage than HO-1 and the exclusions are not as intensive as those in HO-1.

HO-3 Policy

HO-3 covers against each of the perils shown for the HO-1 and HO-2 policies above and any other peril that is not specifically excluded from coverage. As a result of the extensive perils, the HO-3 policy is the one most commonly used by homeowners. The extensive coverage is referred to as �all risk coverage� to the dwelling. The all-risk coverage significantly sets the HO-3 policy apart from the HO-1 and HO-2.

The following are examples of exclusions from coverage:

�  Flood.

�  Surface water.

�  Waves and tidal waves from other bodies of water.

�  Back-up water and sewage or drains.

�  Water below the surface of the ground that flows, seeps or leaks through side walls, driveways, basements, walls, foundations, through doors, windows or floors.

�  Earth movement, volcanic eruption, earthquake, landslide, mudflow, earth sinking, shifting or rising.

�  Damage to air conditioning, heating and plumbing systems caused by leaking or as a result of freezing if failure to heat or shut off water.

�  Wear and tear.

�  Deterioration.

�  Marring or scratching.

�  Mechanical breakdown, inherent vice or latent defect.

�  Rust.

�  Wet or dry rot.

�  Mold.

�  Act of war.

�  Smog.

�  Contamination.

�  Acts of Government.

�  Nuclear reactions.

�  Smoke from industrial operations or agricultural smudging.

�  Shrinkage, cracking, settling, bolting, expansions of walls, floors, roofs, ceilings, foundations, patios, pavement.

�  Domestic animals, insects, rodents, vermin, and birds.

�  Continuous leakage from within a plumbing system or seepage.

�  Theft to a dwelling under construction including materials and supplies.

�  Vandalism and glass breakage.

�  Wind, ice, hail, snow or sleet damage to outdoor television antennas or outdoor radio antennas including towers, masts and wiring.

HO-5 Policy

The HO-5 is very similar to the HO-3 policy in that again, the dwelling is covered on an all risk basis. Personal property, however, also is covered on an all risk basis under the HO-5 policy. This constitutes the major difference between the HO-3 and the HO-5. The HO-5 policy is the most comprehensive standard homeowners� policy available. However, the coverage in this policy is quite expensive for the homeowner. This policy is rarely used today because agents prefer to attach endorsements to the HO-3 policy in order to create a custom policy serving the customer�s needs.

HO-4 and HO-6 Policies

The HO-4 is a tenant�s policy designed for people who rent houses or apartments, and it also applies to owners of cooperative apartments. The HO-6 is a condominium owner�s policy. Both are very similar. Both cover personal property and improvements to the residence made by the insured. Improvements can be cosmetic such as additions, paneling or shelves. The HO-4 affords coverage of up to 10% of the policy amount for improvements. Therefore if personal property is insured for $50,000 dollars, $5,000 would cover improvements.

The HO-6 affords a straight $1,000 for improvements. Neither the HO-4 nor the HO-6 provides any coverage for building structures. In the case of condominiums, an owner�s association insures the structure and public areas, so the condominium owner need only insure the contents and limited improvements.

Both the HO-4 and the HO-6 forms are named peril forms, which means the property is insured for damage resulting from certain perils. HO-4 and HO-6 policies cover personal property against the following named perils:

�  Fire and lightning.

�  Removal.

�  Windstorm or hail.

�  Explosion.

�  Riot or civil commotion.

�  Aircraft.

�  Vehicle.

�  Smoke.

�  Vandalism or malicious mischief.

�  Theft.

�  Falling objects.

�  Weight of ice, snow, or sleet.

�  Collapse of building.

�  Damage from hot water heating systems.

�  Damage from appliances or plumbing.

�  Damage from freezing of plumbing appliances.

�  Damage from electrical currents artificially generated.

Payment under both HO-4 and HO-6 is based on the actual cash value of the property, rather than the replacement cost.

HO-8 Policy

The HO-8 Policy offers coverage for the same named perils as the HO-1 Policy, but this policy does not insure the replacement cost of the dwelling. Instead, the HO-8 Policy only provides payment in the amount of the actual cash value of the dwelling. The HO-8 Policy also provides payments in the amount of repairs to the existing dwelling, as long as those repairs do not exceed the value of the dwelling.

Homeowners Insurance � Property Coverage � Section I

The Property Coverage section of each form of Homeowners Policy covers five basic areas:

�  The dwelling.

�  Detached structures located on the property.

�  Personal property.

�  Loss of the use of the structure.

�  Additional coverage.

The Dwelling

The dwelling consists of the home itself (the actual living structure) and includes attached structures, such as a garage. In the policy declaration page this coverage will be shown as: Section I, Coverage A.

The major portion of coverage in a homeowners policy is designed to pay the cost of rebuilding the structure. A common misunderstanding in this area of coverage is that the homeowner does not actually insure the dwelling for its value on the open market. This is because the land on which the house is built has a value, and the value of that land is not to be included in the coverage amount. Only the cost of the structure is included in the insurance amount.

A helpful way to determine the cost of the structure is to contact a Builder�s Association to find out what the cost per square foot is in the area of the dwelling�s location. By taking the total square footage of the house and multiplying it by the local per-square-foot building cost, an individual can obtain a pretty good idea of the cost required to replace the structure. Many homeowners follow a standard rule of thumb by insuring the structure for at least 80% of the actual cost to rebuild the structure. If the property is secured by a loan, the lender typically requires that the structure be insured for 100% of the actual cost to rebuild the structure.

Detached Structures Located on the Property

These consist of structures that are on the same parcel of land, but are not attached directly to the home itself. This could be a shed for tools, a greenhouse in the yard, or some other structure that would be defined as a non-attached covered structure. Protection for these unattached structures is provided under Section I, Coverage B.

Personal Property

A very important coverage under any residential insurance policy is the personal property coverage. The contents of a home such as furniture, stereos, televisions, appliances, clothing, and the like are considered personal property. These items are covered under Section I, Coverage C. Personal property will be covered as long as the insured owns the property notwithstanding where the insured uses the property. The loss to property does not have to occur at the covered dwelling. Should the insured have personal property of others that is located at the home, this too is covered under the policy.

In other words, personal property owned by a tenant in a rented house would not be covered by the homeowners policy, but personal property brought by a guest visiting the insured would be covered. It is important to know that personal property coverage is not unlimited. In fact, unless endorsements are purchased for specific coverage, the personal property protection can be rather limited.

For example, there is a limit of coverage for loss of personal property. Without further endorsements, this amount is typically 50% of the total amount that the home is insured for under Coverage A. So, if a home is insured for $100,000, the loss for personal property limits would be $50,000.

In addition, there are specific limits of liability that apply to the following personal property items:

�  Money, bank notes, bullion, gold other than gold-ware, silver other than silverware, platinum, coins, and medals. Maximum liability $200. Additional dollar coverage will cause additional premiums.

�  Securities, accounts, deeds, evidence of debt, letters of credit, notes other than bank notes, manuscripts, passports, tickets, and stamps. Maximum liability, $1,000. Additional dollar coverage will cause additional premiums.

�  Watercraft, their trailers, furnishings, equipment and outboard motors. Maximum liability, $1,000. Since coverage is so low in this area, most homeowners choose to purchase separate boat insurance.

�  Trailers not used with watercraft. Maximum liability, $1,000.

�  Grave markers. Maximum liability, $1,000. This is not a frequent issue for homeowners.

�  Theft of jewelry, watches, furs, precious and semi-precious stones. Maximum liability, $1,000. Many people get caught short with this coverage and need to buy endorsements to protect items worth more than $1,000.

�  Loss of firearms by theft. Maximum liability, $2,000.

�  Theft of silverware, silver-plated ware, gold-ware, gold-plated ware, and pewter-ware. Maximum liability, $2,500. Included here are flatware, hollowware, tea sets and trays, and trophies made of these metals.

�  Property on the residence premises used for business purposes. Maximum liability, $2,500. Should an insured have an office in the home or work out of the home and have computers, desks, and other equipment, additional protection is required since the homeowners policy severely limits coverage for these business items.

�  Personal property away from the residence used for business purposes. Maximum liability, $250.

The homeowners policy sets forth specific exclusions to coverage. Articles which are expressly excluded from the homeowners policy must be separately described and insured by endorsement in order to achieve coverage. If the insured elects to specifically cover these items by endorsement, the coverage will be determined by the language of that endorsement and will not be protected by Coverage C.

�  Animals, birds, or fish. Although they may be invaluable to the insured, nothing will be paid for their loss under the homeowners policy.

�  Motor Vehicles and all other motorized land conveyances. Normally these items are protected under an automobile insurance policy. However, there are two exceptions to this exclusion:

�  The vehicle is not subject to motor vehicle registration and is used to service an insured�s residence. or,

�  The vehicle is designed to assist the handicapped.

�  Aircraft and their parts. The insured will need to purchase separate aircraft insurance.

�  Property of roomers, boarders, and other tenants except property of roomers related to the insured. These items are covered under renter�s insurance, rather than the homeowners policy.

�  Property in an apartment regularly rented or held for rental to others by an insured. Again, these items are covered under renter�s insurance.

�  Property rented or held for rental to others off the residential premises. Again, renter�s insurance is required to obtain coverage over these items.

�  Books of account and drawings. Included here are records of bookkeeping that are on paper, electronic data, computer software, and other paper containing business data.

�  Credit cards. The basic homeowners policy does not protect the insured against the loss of credit cards or credit fraud. However, coverage can be obtained under the additional coverage section of a policy.

The following thefts are also excluded under Coverage C:

�  Anything stolen by the insured.

�  Anything stolen from a part of the residence rented to another person.

�  Theft to a building that is under construction.

�  Items stolen from a secondary residence unless the insured is living there when the theft occurs.

�  Theft of watercraft, outboard motors, trailers, or campers which occurs away from the residence premises.

Loss of the Use of the Structure

A homeowners policy provides funds to compensate for the loss of the use of property in the event of damage by a peril covered under the policy. This coverage is provided under Section I, Coverage D. The insured can elect to receive compensation for loss of use in one of two ways:

�  Payment for additional living expenses.

Additional living expenses usually require a higher monthly outlay than one would normally pay at home. If an individual�s home is destroyed by fire, it would be necessary to rent another residence while that home is being rebuilt. The policy will pay additional living expenses that are incurred in order to allow the household to �maintain its normal standard of living.�

�  Payment for the fair retail value of the uninhabitable property.

The insured may receive a benefit that will pay the fair retail value for the residence less any expenses that do not continue while the home is not fit to live in.

Whichever benefit one chooses to receive, the benefit will only be paid for the shortest time required to replace or repair the damages to the property, or if the insured permanently relocates, the shortest time within which the individual can relocate.

Note that if the property that became uninhabitable WAS NOT the insured�s principal place of residence, the insured will only be compensated for additional living expenses as the fair retail value option is not available to the insured.

Additional Coverage

As mentioned above, the HO-3 homeowners policy is the insurance policy most commonly purchased by homeowners. The following additional coverage can be obtained under the HO-3 homeowners policy:

�  Property removed.

If for example, wind destroys the walls of a home and the insured wants to have this property removed, the cost to do so can be paid for under additional coverage. There is a 30-day limit for this coverage to apply.

�  Service charges of the fire department.

The policy will pay up to $500 for the liability for any fire department charges incurred because the fire department was called upon to save or protect the property. In most cases, the city provides this service without charge and no payment is made by the homeowners policy, but this benefit is still made available as additional coverage.

�  Reasonable repairs.

The policy covers reasonable costs incurred by the insured to make necessary repairs to prevent the property from further damage.

�  Debris removal.

If it is necessary to remove debris that is created by a covered loss, the homeowners policy will pay for the removal. The amount available for debris removal is included in the total limit of liability. Should the removal expense exceed that amount, an additional 5% of the total limit of liability may be made available as additional coverage to complete the job.

�  Trees, shrubs, and plants.

Should a covered loss (other than windstorm) damage or destroy trees, shrubs, or plants the policy will pay up to 5% of the limit of liability that applies to the dwelling with a maximum of $500 for any one tree, shrub, or plant. Commercial growing is not covered.

�  Forgery, counterfeit money, credit card and fund transfer card.

The HO-3 policy will pay up to $500 for the following:

�  Forgery or alteration of a check that causes a loss.

�  Unauthorized use or theft of an ATM card that results in a loss.

�  Unauthorized use of credit cards issued in the name of the insured.

�  If the insured in good faith accepts counterfeit U.S. or Canadian paper currency.

�  Collapse.

Any collapse of a building or collapse of part of a building will be covered if the collapse causes the insured a direct physical loss and the collapse is caused by one of the following means:

�  Hidden insect damage.

�  The weight of the building�s equipment, contents, people or animals.

�  Rain collecting on the roof and causing damage or collapse.

�  Hidden decay.

�  Defective material used in construction, renovation or remodeling, provided the collapse occurs during the course of such work.

Note � Collapse does not include any damages that may be caused by bulging, expansion, settling, cracking or shrinking.

Homeowners Insurance � Liability Coverage � Section II

Coverage for liability under each form of homeowners policy is found under Section II, Coverage E � Personal Liability. This coverage provides that if a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage caused by an occurrence to which the coverage applies, the insurance company will:

�  Pay up to the limit of liability if the insured is legally liable; and

�  Provide defense by counsel even if the suit is groundless, false or fraudulent.

In addition to the coverage for damages described in Coverage E, Coverage F of the homeowners policy specifically covers the cost of medical payments for individuals who are injured while at the insured location, as long as the injured party is at the property with the permission of the insured. Medical expenses will be paid under the homeowners policy in the following cases:

�  An injury which requires medical payments arises out of a condition on the insured property or the ways immediately adjoining. For example, if a tree that is rooted in an insured�s yard has a branch that hangs over to the  neighbor�s yard and that branch falls and hits the neighbor on the neighbor�s property, the insured�s homeowners policy will cover the neighbor�s medical costs arising out of injury from the tree branch.

�  Bodily injury is caused as a result of activities by the insured. Should an insured be riding a horse on the insured property or hit a golf ball from the insured property, the insured�s homeowners policy will pay medical bills for a third party injured by that activity.

�  A residence employee causes bodily injury to a party in the course of the employee�s work at the property. Maids, butlers and domestic help would fall under this category of coverage.

�  Bodily injury caused by an animal owned or in the care of the insured. For example, dog bites are covered here.

Personal Liability Exclusions

The liability portion of the homeowners� policy will not cover the following:

�  Bodily injury to the insured. If the insured is injured at home due to his or her own negligence, the policy will not pay any amount to the insured.

�  Damages caused by failure to render professional services or by rendering professional services. If the insured is a carpenter and work performed by the insured is defective and causes damages, the homeowners policy will not pay for those damages.

�  Damages caused by motor vehicles. Motor vehicle insurance must be provided by a separate motor vehicle policy.

�  Damages caused by operation of an aircraft. Again, separate insurance must be carried here. On the other hand, injuries caused by model hobby planes will be covered.

�  Communicable diseases. The homeowners policy does not provide liability protection for the transmission of a disease.

�  War. Any damage that a war causes is specifically excluded from coverage under the homeowners policy.

�  Workers� Compensation injuries. Should an individual covered by his or her employer�s workers compensation coverage become injured while working at a home covered by a homeowners policy, the homeowners policy will not pay for damages arising from injury to that individual.

�  Damages caused by watercraft. If while using the craft, damages result, they will not be paid by the homeowners policy, even if the craft is used on the insured property. Separate coverage must be obtained to insure these matters.

�  Non-insured locations. If the insured own other property that is not listed on the homeowners policy, the insured will not receive liability protection under the policy from any damages which occur at the other property.

�  Intentional acts of the insured. If the insured intends to harm another party, the homeowners policy will not provide liability protection for that action.

�  Business activities. Should there be any damage as a result of business pursuits by the insured, the homeowners policy will not cover any such occurrence.

Filing the Homeowners Insurance Claim

In general, there are four factors necessary in order for a loss to be covered by homeowners insurance:

�  Losses must be accidental.

Insurance policies insure against �risks.�  If a loss is certain to occur, there is no risk involved. As a result, losses must be accidental. Losses resulting from deterioration are generally thought to be the result of a certainty; after all, everything wears out sooner or later. For this reason, losses caused by deterioration are not deemed accidental and are not covered by homeowners insurance.

�  Losses must be caused by extraneous factors.

This means an external cause of damage must cause the loss. As an example, an extraneous factor would include wind damaging patio furnishings. Should a loss be caused by an inherent physical condition, rather than an extraneous factor the loss would not be covered under the homeowners insurance policy.

�  Losses were not caused by deliberate action on the part of the insured.

Any deliberate action by the insured which causes a loss to any insured property or liability to any third party is not covered under the homeowners insurance policy. The insured cannot deliberately destroy property that is insured and expect the insurance carrier to pay for that damage. Similarly, the insured cannot expect the insurance company to cover liability for intentional injury to a third party.

�  Losses must involve covered, legal property.

Illegal items and contraband are not covered by insurance. If an insured possesses an illegal whiskey still in his home and the still is damaged by a covered peril, that loss will not be covered under the policy.

If a loss meets each of the above criteria, the insured may be able to file a claim for loss under the homeowners policy. Note that one of the elements of a valid claim is that the insured must actually sustain a loss.

When a claim needs to be filed, the following must be kept in mind:

�  A policyholder normally has a strong and favorable position where claims are concerned.

�  As a rule, the courts usually resolve questions on claims in favor of the policyholder (the insured).

�  The overall effect of court decisions has been to broaden the coverage of homeowners policies beyond the plain language of the policy.

�  Although companies differ in their approach to claims, most work to provide good service to their customers. However, the policyholder must carefully monitor the claim adjustment process in order to assure fair, proper treatment of claims.

�  In approximately 80% of all claims, less than 10% of the property insured is affected by loss. Therefore, it could be said that individuals are buying insurance to only cover 10% of the property in question and coverage will be adequate 80% of the time.

Replacement Cost Coverage

All homeowners policies contain a replacement cost provision that requires the insured to purchase an amount equal to 80% of the replacement cost of the dwelling. This requirement simplifies the determination of insurance rates across properties and allows premiums to be based on a fixed cost per $100 worth of insurance.

Calculating replacement cost for the purpose of buying insurance is somewhat different than estimating the cost of buying a new home. There are two reasons why one needs to accurately determine the replacement cost of a home. First, to be certain that the coverage is adequate and that it complies with the replacement cost requirement. Second, the insured wants to be secure in the fact that he is not being sold an excessive amount of insurance with the higher premiums that go along with that excessive amount.

Note that replacement cost coverage applies only to buildings and not the personal property covered under the policy.

The insurance company may attach a penalty to a replacement cost claim due to insufficient coverage, as the homeowners policy stipulates that payment is to be based on replacement cost less the appropriate penalty or the actual cash value of the repairs, whichever is greater. As a result, claim payment based on actual cash value of repairs may be higher than the net claim payment (factoring in the penalty) for replacement value on a property which is not adequately insured.

When claims are paid under the replacement cost coverage, the insurance company is permitted to determine its obligation three different ways and choose the method that works best for the company. These three choices are as follows:

�  On policy limits. The most the company ever will pay is the amount of insurance that applies to the property covered.

�  On the cost of replacement. This would be based on the cost of an equivalent building at the same location.

�  On the actual amount spent in completing repairs.

Replacement cost can be defined as the cost to replace damaged property with property which is:

�  Of like kind and quality.

�  Similar in basic style.

�  Similar in basic quality.

�  Similar in basic function.

Remember that the policy provides coverage for replacement costs, not reproduction costs. Reproduction costs are defined as the costs for replacing property exactly as it was, down to the last detail.

There is one interesting loophole in replacement cost coverage:  The repair work need not be performed in order to replace the actual property at the original location. In some states, reconstructing property at any location, including a different city or state, will qualify for coverage under a replacement cost claim.

Dwelling Claims

When an insured has a claim for a damaged dwelling or other structure, the insured must realize that the claims process may be an involved and complicated process. There are four important steps to filing a claim on a dwelling. They are:

�  Determining coverage.

The insured must first determine what is and is not covered by the homeowners policy. If there is a difference between the cost to repair and the amount of the claim, it could result in out of pocket expenses to the insured. In other words, if coverage is lacking in certain areas, it may be necessary for the insured to take measures throughout the adjustment process to cover shortages on his or her own.

�  Determining the scope of repairs.

This is the insurance company�s description of work that will be included in repair estimates. It can also be referred to as the �scope of damage,� the �description of work,� or the �job description.�

The claims representative will prepare most scope of repairs documentation. The insured must review with the claims representative all of the work to be considered in the scope of repairs. Often, there are contentious aspects in determining the scope of repairs. For example, the insurance company representative (also referred to as the �adjuster�) may feel that a bedroom was not damaged enough by smoke to warrant painting it; or the representative may believe that a soiled carpet can be cleaned rather than replaced. The adjuster works for the insurance company and may try to convince the insured to accept a scope of repairs that will ultimately lower the cost of the repair.

�  Determining the cost to repair.

Once the scope of repairs is determined, it must be converted into an agreed �cost to repair.�  The insurance company is in a strong position compared to the position of the insured when determining the cost of repair. This is particularly true because most insurance companies use a contractor estimate to establish a cost to repair. The insurance company controls the estimate process and may receive quotes from parties which typically provide low estimates.

Notwithstanding the relative positions of strength in determining the cost to repair, the process should be handled fairly and adhere to common conventions used to determine the cost. For example, contractor profit and overhead allowances must be included in determining the cost to repair. The insurance company cannot omit this component of the repair cost.

The policyholder must be diligent in negotiating the cost to repair in order to receive the most favorable possible outcome.

�  Determining the amount of the claim.

This part of the claims process is relatively easy, as the appropriate deductibles are subtracted from the agreed cost to repair. Portions of the loss that are not covered by the homeowners policy will also be subtracted from the cost to repair to determine the final amount of the claim.

Once all figures are agreed upon, including the cost to repair, the actual cash value amount of claim, and any pending replacement cost claim, the insured and the insurance company will sign documentation agreeing to the numbers and providing for payment to the insured or direct payment to contractors.

Personal Property Claims

A personal property claim is very similar to a dwelling claim. The claims process follows four steps similar to those steps for processing a claim on a dwelling:

�  Determine coverage.

The insured should determine what personal property is covered by reviewing the policy and carefully reviewing the exclusions in the policy that specifically refer to personal property.

�  Determine the scope of loss.

The scope of the loss determines the actual property which will be included in the claim. The insured should always complete an inventory on his or her own, rather than simply leaving this task to the insurance company representative. If the insured can present an accurate and detailed claim of loss, the insurance company will be able to more quickly determine the scope of loss. The insured must provide adequate documentation regarding lost or damaged personal property in order to facilitate the claims process.

The insured will benefit from prior records of personal property inventory. Individuals who have photographed or videotaped evidence of the existence of lost or stolen personal property will be in a good position to clearly establish the scope of loss.

Often, it may be difficult to determine whether damaged items can be cleaned or need to be replaced. If the insurance company agrees to clean the item and the cleaning is unsuccessful, the property will be replaced.

�  Determine the replacement cost.

Once the parties determine the scope of loss, they may determine the replacement cost of the property. This involves a substantial amount of work obtaining cost estimates for each item of personal property included within the scope of loss. The insured must monitor this process and provide price references as necessary to help determine the appropriate replacement cost.

�  Determine the amount of the claim.

The final step is determining the actual cash value of the claim. If the insured will not actually replace the property, the insurance company may only be required to pay the actual cash value of the lost or damaged item rather than the full replacement cost. Obviously, the insurance company will not be anxious to pay out the full dollar amount of the replacement cost without assurance that the insured will actually replace the property. This is particularly true because the value of most personal property significantly depreciates over time, and there may be a large dollar gap between the actual cash value and the replacement cost. As a result, the insured will likely have to show evidence of actual purchase of the replacement item in order to receive payment of the replacement cost as final settlement of the claim.

Other Homeowners Insurance Concepts

An agent�s understanding of the following terms and concepts is essential to offering and describing homeowners insurance to customers.

Subrogation

Subrogation is the substitution of one party in place of another party in respect to a claim or a lawful right. When one party negligently damages another person�s property, the injured party has the right to recover any damages. When the insurance company pays the injured party for the loss, the company takes over the rights of recovery that previously belonged to the injured party. In other words, subrogation permits the insurance company to step into the shoes of its insured in order to seek reimbursement for amounts which it pays to the insured under the homeowners policy. Subrogation evolved in order to prevent injured parties from receiving a windfall by collecting from both the insurance company and the responsible party.

If an insured suffers a loss, the insurance company must pay the claim on a timely basis. The insurance company cannot force the insured to seek recovery from the responsible party. Often, an insurance company will stand aside and allow a third party to compensate an insured, but this can only occur with the consent of the insured. After the claim is paid, the insurance company will try to obtain restitution for the damages from the party which caused the damage.

Statements

Under the homeowners policy, the insured is to provide certain claim statements. There are two kinds of statements which the insured may be asked to give in regards to a claim:

�  An informal statement taken by the company representative upon inspection of the loss. This kind of statement is either handwritten or recorded on tape. The statement is taken in order to record facts and document the insured�s story. The existence of a recorded statement lessens the probability of an insured changing the story over time.

�  A formal statement under oath. If requested by the company, a formal statement can be required under a homeowners policy. It is usually taken by an attorney and is, in effect, sworn testimony. If the insured lies in this statement, he would be guilty of perjury. If the insured refuses to give a formal statement under oath, the claim may be rendered void. The insurance company�s decision to request a formal statement usually indicates that the company believes something is suspicious about the claim.

Salvage

The insurance company has the right to salvage property such as fixtures, appliances and any other part of a building as long as the insured has been paid for a total loss. Sometimes, the salvage goods will be sold back to the insured, however, the insured is under no obligation to accept this offer. For the most part, insurance companies will seek the services of a salvage company and do not care to directly involve themselves in this process. After the salvage company subtracts expenses and a percentage for profit, the balance goes to the insurance company as a return on the salvage operation.

Non-Waiver Agreement

By merely investigating the facts of a case, the insurance company can sometimes lose its rights to deny a claim as a result of the legal concept of �estoppel.�  In the event a company leads a policy holder to believe that a claim will be paid or implies that it will be paid in some manner, estoppel may prohibit the insurance company from denying the claim. The insurance company may be prohibited from denying the claim even if subsequently uncovered facts clearly indicate that the claim should not be covered by the policy.

To avoid the possibility of coverage by estoppel, many insurance companies investigating questionable claims require the insured to sign a non-waiver agreement that states that the insured understands that the company will not be required to pay the claim merely because the company explores the facts regarding the claim.

Cancellation

The company or the insured may cancel a homeowners policy. If the company cancels, the insured is entitled to the full amount of unused premiums on a pro rata basis. The insured need only notify the company in writing to cancel the policy. The insurance company must provide no less than five days notice before canceling a homeowners policy. This period of time is intended to provide a window for the homeowner to obtain a new policy.

Homeowners Insurance � Concluding Thoughts

For many of your prospects, purchasing homeowners or renters insurance may be their first experience purchasing insurance. As you offer homeowners and renters insurance policies to potential customers, it is important that you ask enough questions to obtain a full understanding of the insured�s needs. You should also be aware that a number of states require specific policy endorsements which are created specifically for the state.

Personal Property Insurance � Introduction

As described above, the basic homeowners policy usually contains various limitations and exclusions on coverage. Therefore persons who are owners of valuable personal property often need broader and more comprehensive coverage than is provided by the basic homeowners policy. This broader and more comprehensive coverage may be obtained through appropriate personal property insurance.

Inland Marine Insurance

The very first form of personal property insurance coverage was an Ocean Marine policy. The policy was written to provide financial protection for owners of ships in case their property or cargo was lost at sea.

Ocean marine policies insured the cargo from port to port. Later on, a clause was added to also insure cargo while it was being transported on land. As an end result, policy coverage extended from the original point of departure until the final destination point to include both ocean and inland transportation of those goods.

Eventually a separate policy was developed that dealt only with the insuring of the goods while being transported on land and the policy became known as an �inland� marine policy (in contrast to the �ocean� marine policy).

Inland Marine policies eventually began to provide a broad coverage for other property of a �floating� or moveable nature. Inland marine policies were offered on an �all risk basis� rather than a �named peril� basis as offered in most existing casualty policies.

Inland Marine Insurance � Definition

Inland marine policies generally cover property that is transported from one place to another (excluding transfer over waterways). This property includes goods in transit and other property transported over roadways and bridges or under tunnels. Information transferred via television broadcasting towers or other communication transfer devices may also be covered by an inland marine policy.

Inland Marine Floater Characteristics

Various floater policies can also be used to cover personal effects and property. The floater policy will provide coverage to items that �float� or move along with the covered property while it is changing locations.

An inland marine floater has four major characteristics.

�  Tailored coverage.

A personal articles floater provides coverage for nine optional classes of personal property. We will list each of these classes later in these materials.

This type of floater permits the insured to select coverage for the class or classes of property needed. It is also possible to write each of these types of coverage on separate floaters. For example, any of the following floaters are possible:

�  Jewelry floater.

�  Fur floater.

�  Coin collection floater.

�  Stamp floater.

�  Camera floater.

�  Selection of policy limits.

As we have discussed, the basic homeowners policy has limitations on coverage of certain types of valuable property. The insured must look to a floater policy in order to obtain higher limits of coverage. Also, as a rule, when a basic homeowners policy combines the value of certain types of personal property with the value of unscheduled personal property it is possible that the combined total may exceed the homeowners policy limits on personal property. Here again, the floater policy can provide higher limits.

�  Extensive coverage to perils covered.

When a floater is written it usually provides coverage on a �risks of direct physical loss� basis. The floater covers all risks of direct physical loss to the property that is described except specifically excluded losses. The commonly excluded losses will be discussed later in these materials.

�  Worldwide coverage.

The property described in most floaters will be covered anywhere in the world with the exception of fine arts, which are usually covered only in the United States and Canada.

Inland Marine Floater Provisions

The following policy provisions appear in most Inland Marine Floater policies:

�  Loss settlement.

The amount that will be paid for a covered loss will be the lowest of the following four amounts:

�  The actual cash value of the property at the time of loss or damage.

�  The amount for which the insured could reasonably expect to repair the property to its condition which existed prior to the loss.

�  The amount for which the insured could reasonably expect to replace the property with property substantially identical to the article lost or damaged.

The insurance company can purchase much of the property insured in a floater at discounted prices. Therefore the insurance company may want to replace the lost or damaged item itself rather than provide cash reimbursement to the insured. Should the insured reject the replacement offer, the insurance company�s cash reimbursement will then be limited to the amount for which the insured could reasonably be expected to replace the item. This amount will equal the discounted price which the insurance company would have paid to replace the item, even if the insured does not have access to that same discount.

�  The amount of insurance stated in the policy.

�  Loss to a pair, set, or parts.

In the event that there is loss or damage to a covered property in a pair or set, such as the loss of one earring, the amount to be paid is not based on a total loss. The insurance company may either repair or replace any part to restore the pair or set to its pre-loss value or pay the difference between the actual cash value of the pair or set before and after the loss.

�  Loss clause.

The loss clause provides that the overall limit of the insurance policy will not be reduced in the event of payment of a claim, except that the overall limit of the policy will be reduced in the event of payment on account of a total loss of a scheduled item. If the amount of the insurance is reduced because of a total loss of a scheduled article, the insurance company will either refund the unearned premium or apply the unearned premium to the current premium due if the scheduled article is replaced with another item.

�  Claim against others.

This policy provision is very similar in nature to the subrogation clause. If a loss occurs and the insurance company believes that the insured can recover the payment for that loss from the person or parties responsible, then the loss payment to the insured will be considered a loan that must be repaid out of any funds recovered from others. The insurance company will expect the insured to cooperate with any attempt the insurance company makes to recover from others responsible for that loss. Should the recovery attempt be unsuccessful the insured will not be required to pay the �loan� on the loss settlement.

�  Insurance not to benefit others.

No organization or other person that may have custody of the insured property and which is paid for services can benefit from the insurance on the property. The purpose of this provision is to prevent a third party who caused the loss from denying liability for payment by stating that the property is insured. The statement that the insurance is not for the benefit of third parties helps to retain the insurance company�s right of subrogation and a cause of action against the negligent party.

�  Other Insurance.

In the event that there is other insurance at the time of loss that applies to the property, that insurance is considered excess insurance over the primary insurance policy. The primary insurance policy will pay its benefit in full, and the insured may then turn to the second insurer.

Inland Marine Floater Exclusions

As a general rule, inland marine floaters provide coverage to property on an �all-risks� basis. Physical loss to covered property is provided for all cases other than the following exclusions:

�  Wear and tear.

�  Deterioration.

�  Inherent vice.

�  Insects or vermin.

�  Mechanical breakdown or failure.

�  Electrical breakdown or failure.

�  Repairing the property.

�  Adjusting the property.

�  Servicing the property.

�  Maintaining the property.

In addition, inland marine floaters contain general exclusions for loss related to war, nuclear reaction, and radiation.

Personal Articles Floater

The Personal Articles Floater (often referred to as the PAF) is a particular type of insurance floater which provides coverage over nine optional classes of personal property. Coverage follows the property worldwide, except for fine arts.

The nine classes of personal property that can be insured under a Personal Articles Floater are:

�  Jewelry.

�  Furs.

�  Cameras.

�  Musical instruments.

�  Silverware.

�  Golfer�s equipment.

�  Fine arts.

�  Postage stamps.

�  Rare coins/current coins.

Certain newly acquired items of property such as jewelry, furs, cameras, and musical instruments will be automatically covered for 30 days without specific itemization, provided that insurance was already written on that class of property. The amount of insurance on newly acquired property is limited to the lower of 25 percent of the amount of insurance for that class of property or $10,000.00. The property must be reported to the company within 30 days of purchase in order for the coverage to continue. The insured will be charged an additional premium for coverage from the date of acquisition.

We will now examine each of the nine classes of personal property which may be covered under a Personal Articles Floater:

�  Jewelry.

Coverage on personal jewels applies anywhere in the world. Each item of jewelry, including watches, necklaces, and rings, must be scheduled with a specific amount of insurance. Jewelry is very carefully underwritten by the insurance company as a result of the significant hazard of loss. As a rule, the insurance company will require either the original bill of sale or a signed appraisal before the jewelry is insured. The insured must also possess satisfactory financial resources to suggest that the jewelry was not stolen, and the insurance company will want to know that the insured is not in the habit of losing or misplacing articles.

�  Furs.

The PAF can be used to insure:

�  Personal furs.

�  Items consisting principally of fur.

�  Garments trimmed in fur.

�  Fur rugs.

�  Imitation fur.

Again, each item must be separately listed with a specific amount of insurance shown for each item. As with jewelry, furs are very carefully underwritten.

�  Cameras.

A PAF can also be used to insure each of the following items. Each of these items must be individually described and valued.

�  Photographic equipment.

�  Cameras.

�  Projection machines.

�  Portable sound equipment.

�  Recording equipment.

�  Motion picture cameras.

�  Motion picture projectors.

�  Films.

�  Binoculars and telescopes.

Exceptions to the rule requiring the scheduling of items would be miscellaneous smaller items, carrying cases and filters, provided that the total value of the non-scheduled (or �blanketed�) items is not more than 10% of the total amount of the insurance on cameras.

�  Musical Instruments.

The following items can be covered under a PAF:

�  Musical instruments.

�  Instrument cases.

�  Sound equipment.

�  Amplifier equipment.

Should a musical instrument be used and played for pay during the policy period it will not be covered unless an endorsement is added reflecting this business use. Business equipment will require a higher premium.

�  Silverware.

Silverware and gold-ware may also be covered under a PAF. Silver pens, pencils and smoking implements may not be insured as silverware. These types of property instead may be insured as jewelry.

�  Golfer�s equipment.

Golf equipment such as golf clubs and golf clothes will be covered. Other golf equipment may also be insured under a PAF.

Clothing contained in a locker is also covered while the insured is playing golf. Golf balls are covered only in the event of fire and burglary if there are physical marks of forcible entry into the building, room or locker.

�  Fine Arts.

Fine arts can include the following:

�  Paintings.

�  Antique furniture.

�  Rare books.

�  Rare glass.

�  Bric-a-brac (knick-knacks).

�  Manuscripts.

Fine arts are insured on a valued basis and must therefore be on a schedule with the amount that was paid for that item. Damages are paid on an actual cash value basis up to the stated value. Newly acquired fine arts will be automatically insured for ninety days without scheduling. The insured is required to notify the insurance carrier within ninety days of acquisition and the additional premium due will accrue from date of acquisition. The limit on fine arts property is subjected to 25% of the total insurance.

Fine arts are subject to three major exclusions:

�  Damage caused by repairing, or retouching.

�  Breakage of art glass windows, glassware, statuary, marble, bric-a-brac, porcelains, and similar fragile articles. However, the exclusion does not apply if fire, lightning, explosion, aircraft, collision, windstorm, earthquake, flood, malicious damage or theft, and derailment or overturn of a conveyance causes the breakage.

�  Loss to property on exhibition at fairgrounds or at national or international expositions is excluded unless the premises are covered by the policy.

�  Stamp and coin collections.

These collections are insured for loss anywhere in the world. The stamps and coins may be insured in one of two ways: scheduled basis or blanket basis.

�  The scheduled basis is suggested if the items are extremely valuable. In this way each item is specifically listed and insured.

�  Under the blanket basis the insurance applies to the entire collection since each item is not separately described. In the event of a loss to a scheduled item, the amount to be paid is the lowest of the following:

�  Actual cash value.

�  The amount for which the property would reasonably be expected to be repaired.

�  The amount for which the property would reasonably be expected to be replaced.

�  The amount of insurance.

In the event of a loss to an item covered on a blanket basis, the amount paid will be the cash market value at the time of loss. There is a $1,000 maximum on any unscheduled coin collection. There is a $250 maximum limit on any of the following:

�  Single stamp or single coin.

�  Individual article.

�  Single pair.

�  Single block or single series.

�  Single sheet or single cover.

�  Single frame or single card.

In addition, for any stamps or coins insured on a blanket basis, the company is not liable for a greater proportion of any particular loss than the proportion which the amount of insurance on blanket property bears to the actual cash market value of the property at the time of loss. For example, suppose that the insured owns an unscheduled coin collection which is insured on a blanket basis for $500. One coin worth $50 is stolen. At the time of theft, the entire collection has an actual current market value of $1,000. Since the proportion of insurance on the collection compared to actual cash value of the collection is 50%, the insured�s maximum recovery for the loss of the coin will be $25 (50% of the coin�s $50 cash value). Had the insured purchased $1,000 worth of insurance, the $50 loss would have been paid in full.

For stamp and coin collections, damage from any of the following causes is excluded from coverage under the PAF:

�  Fading.

�  Creasing.

�  Denting.

�  Scratching.

�  Tearing.

�  Thinning.

�  Transfer of colors.

�  Inherent defects.

�  Dampness.

�  Extremes of temperature.

�  Depreciation.

�  Damage from being handled.

�  Damage from being worked on.

�  Mysterious disappearance, other than in the event where the item is scheduled or specifically insured, or is mounted in a volume and the page to which it is attached is also lost.

�  Property lost in the custody of transportation companies.

�  Shipments by mail other than registered mail.

�  Theft from any unattended motor vehicle.

Personal Property Floater

This floater provides extensive coverage on personal property owned or used by the insured that is kept at the insured�s residence. This rider will also provide worldwide coverage when this property is temporarily away from the residence. The property is issued on a special all-risk basis. This means all direct losses are covered unless specifically excluded.

Scheduled Personal Property Floater

This floater is used to provide coverage for personal articles and valuable items that do not fall within the nine categories previously listed for the Personal Articles Floater. Examples of such items are:

�  Dentures.

�  Typewriters.

�  Camping equipment.

�  Wheelchairs.

�  Stereo equipment.

�  Grandfather clocks.

This is not a complete list, as almost any kind of personal property may be insured under a scheduled personal property floater. This type of coverage is quite flexible and may be adapted to meet the needs of the individual insured.

Insurance producers will often be asked what type of personal property should be scheduled on a personal property floater. As a general rule, valuable personal property should be scheduled and specifically insured under a floater policy. Diamond rings, fur coats and other jewelry of high value should be specifically scheduled. The following types of personal property should also be considered for scheduled coverage:

�  Unique objects.

�  Works of art.

�  Rare antiques.

�  Paintings.

�  Stamp collection.

�  Rare coin collection.

�  Portable property.

�  Cameras.

�  Camera equipment.

�  Musical instruments.

�  Sports equipment.

�  Fragile articles.

�  Glassware.

�  Statuary.

�  Scientific instruments.

�  Typewriters.

�  Home computers.

�  Business or professional equipment.

Since the basic homeowners policy provides coverage for personal or business property only to a maximum of $2,500 on the resident premises and $250 away from the resident premises, the insurance producer may recommend that the property be more adequately insured by scheduling the property with a stated amount of insurance shown for those items.

Unscheduled Personal Property

The Personal Property Floater also may be used to insure the following classes of unscheduled property:

�  Silverware, gold-ware, pewter-ware.

�  Clothing.

�  Rugs and draperies.

�  Musical instruments and electronic equipment.

�  Paintings and other art objects.

�  China and glassware.

�  Major appliances.

�  Guns and other sports equipment.

�  Cameras and photographic equipment.

�  Building additions and alterations.

�  Bedding and linens.

�  Furniture.

�  All other personal property and professional books while on the residence.

Each of the above categories carries a maximum limit for recovery for the particular category. The floater also carries a maximum limit spreading across all of the categories which matches the total policy limit.

Newly Acquired Property

Any newly acquired property will automatically be covered under a Personal Property Floater for up to the lower of 10% of the total amount of insurance or $2,500.

Insurance on newly acquired property may be applied to any of the enumerated categories. Newly acquired property at the principal residence of the insured will be covered for thirty days from the time the property is moved there. The coverage on the newly acquired property is subject to the amount of the insurance for each enumerated category.

Property Not Covered

The personal property floater will not cover any of the following personal property:

�  Animals, fish, birds.

�  Boats, aircraft.

�  Trailers, campers.

�  Motorcycles, motorized bicycles.

�  Motor vehicle equipment, motor vehicle furnishings.

�  Property pertaining to a business, property pertaining to a professional.

�  Property pertaining to an occupation.

�  Property usually kept somewhere other than the insured�s residence throughout the year.

Additionally the personal property floater places specific limits on certain property.

For example:  

�  $100 limit on money.

�  $100 limit on unscheduled coins.

�  A $500 limit on unscheduled securities, notes, stamps, passports, tickets, jewelry, watches, and furs.

The personal property floater also excludes certain losses such as:

�  Animals owned or kept by the insured.

�  Mechanical or structural breakdown.

�  Water damage.

�  Any work on covered property except jewelry, watches, or furs.

�  Dampness/extreme changes of temperature except if caused by snow, rain, hail or sleet.

�  Bursting of pipes.

�  Bursting of apparatus.

�  Acts or decisions of any person, group, organization or government body.

�  Wear and tear.

�  Deterioration.

�  Inherent vice.

�  Insects or vermin.

�  Marring or scratching of property.

�  Breakage of eyeglasses.

�  Glassware.

�  Fragile article.

�  Lightning.

�  Theft.

�  Vandalism.

�  Malicious mischief.

Personal Effects Floater

The Personal Effects Floater (PEF) is designed for travelers who want coverage on their personal effects while traveling. The PEF will provide coverage on the personal property of tourists and travelers anywhere in the world. However, this will only be in effect while the covered property is away from the residence premises. This coverage will apply to: the insured, his or her spouse, and any unmarried children who permanently reside with the insured.

Personal Effects Coverage

Property normally worn or carried by an individual comes under the heading of personal effects. Coverage for personal effects will include: luggage, clothes, cameras, and sports equipment while the insured is traveling or on vacation.

Property Excluded

The following property is excluded under PEF coverage:

�  Automobiles, motorcycles, bicycles or boats.

�  Accounts, bills, currency, deeds, evidence of debts, or letters of credit.

�  Passports, documents, money, notes, securities or tickets.

�  Transportation.

�  Household furniture.

�  Household animals.

�  Automobile equipment.

�  Salesperson samples or merchandise for sale or exposition.

�  Physicians/surgeons� equipment.

�  Artificial teeth.

�  Artificial limbs.

�  Theatrical property.

All-Risks Coverage

Personal effects will not be covered on an all-risks basis. Risks of direct physical loss to a property are covered except as follows:

�  Damage to personal effects from:

�  Wear and tear.

�  Gradual deterioration.

�  Inherent vices.

�  Vermin.

�  Insects.

�  Damage while property is being worked on.

�  Breakage of articles of a brittle nature unless caused by:

�  Fire.

�  Theft.

�  Accidents to a conveyance.

Other Exclusions

In addition to the exclusions previously mentioned, the following exclusions also are present in the PEF:

�  Personal effects are not covered while on the named insured�s residence premises.

�  Property in storage is not covered.

�  Personal effects in the custody of students while in school are not covered except for loss by fire.

Limitations on Certain Personal Effects

Jewelry, watches and furs are subject to a single article limit of 10% of the total amount of the insurance, with a maximum of $100.

A careful review of the prospect�s assets and needs will help determine the necessity for any of these additional coverages.

Personal Umbrella Liability Insurance

A serious personal liability lawsuit can reach catastrophic levels for the party defending the lawsuit, as the judgment may potentially exceed the individual�s insurance policy liability limits. Once these liability limits are exhausted the insured is often forced to pay a substantial amount out of his pocket. Thus, individuals may require increased protection against catastrophic lawsuits. Individuals that usually need this protection include:

�  Highly paid executives.

�  Physicians.

�  Surgeons.

�  Dentists.

�  Attorneys.

Do not be misled to assume that only those listed above need this protection. Considering the increased frequency of liability lawsuits and the complexities of modern living, most people may actually require this protection.

Such additional insurance protection can be provided by a personal umbrella liability insurance policy.

Nature of Personal Umbrella Insurance

The umbrella package is designed to provide the insured with coverage in the event of:

�  A catastrophic claim.

�  A lawsuit.

�  A judgment.

The amount of umbrella coverage can range from $1,000,000 to $10,000,000.

The contract usually covers the entire family worldwide. The umbrella typically covers liability losses associated with the:

�  Home.

�  Automobile.

�  Boats.

�  Recreational vehicles.

�  Sports.

�  Other personal activities.

While it is true that an umbrella policy is not a standard contract, umbrellas do have some common features such as:

�  A self-insured retention which must be met with certain losses covered by the umbrella policy but not covered by an underlying insurance policy.

�  The umbrella policy provides excess coverage over basic underlying policies, such as personal auto, and homeowners insurance.

�  Coverage is broad and includes coverage for some losses not covered by underlying contracts.

Excess Liability Insurance

The umbrella policy pays only after the limits of the underlying policy are exhausted. Some umbrella policies require that the insured carry certain minimum amounts of liability on the basic underlying contracts. For example, on an automobile policy the minimum liability coverage required on the basic contract could be:

�  $100,000 per person for bodily injury liability.

�  $300,000 per occurrence of bodily injury liability.

�  $25,000 for property damage liability.

�  A combined single limit of $300,000.

On a homeowners policy the minimum required on the basic contract could be $100,000 of personal liability. If a watercraft is involved, liability exposure requirements may be $500,000 of single limit underlying coverage.

Broad Coverage

With respect to personal loss exposures, the personal umbrella policy provides broad coverage. The personal policy coverage also covers certain losses that the underlying contract may not cover after the insured meets certain self-insured retention requirements. These losses include:

�  Personal injury.

�  Libel claims.

�  Slander.

�  Defamation of character.

�  False arrest.

�  False imprisonment.

�  Humiliation.

Here are five specific examples of claims that may be paid by umbrella insurance companies:

�  The insured slandered two police officers.

�  The insured borrowed a tractor and damaged it. After a self-insured retention was met the umbrella covered the loss.

�  The mast on a rented boat broke during a race and seriously injured a crewmember. Primary coverage was not available to the insured.

�  The insured rents a car in England and is involved in a serious accident. The personal umbrella covered the loss since only limited underlying coverage was available.

�  The insured�s spouse rents a motorcycle and is involved in a serious accident. Since the underlying automobile/homeowner contracts do not cover the ensuing third-party claim, the umbrella pays the claim.

Self-Insured Retention

When an umbrella policy covers a loss which is not covered by the underlying insurance policy, a self-insured retention or deductible must be met. As a rule this deductible is at least $250 per occurrence and can be higher.

Personal Umbrella Coverages

Personal umbrella coverage may include coverage for each of the following:

�  Personal injury liability.

The insured�s liability for personal injury is covered under the personal umbrella policy. Personal injury is defined to include:

�  Bodily injury.

�  Sickness.

�  Disease.

�  Disability.

�  Shock.

�  Mental anguish.

�  Mental injury.

This definition can also include:

�  False arrest.

�  False imprisonment.

�  Wrongful entry.

�  Wrongful eviction.

�  Malicious prosecution.

�  Humiliation.

�  Libel.

�  Slander.

�  Defamation of character.

�  Invasion of privacy.

�  Assault and battery (not intentionally committed or directed by a covered person).

�  Property damage liability.

Property damage can be defined as physical injury to tangible property and includes loss of use of the injured property. The umbrella insurance company agrees to pay losses for which the insured is legally liable and which exceed the �retained limit.�  The �retained limit� is either:

�  The total of all applicable limits of all required underlying contracts and any other insurance available to a covered person, or

�  The self-insured retention if the loss is not covered by the underlying insurance.

�  Defense costs.

Typically, legal defense costs in addition to the policy limits are paid  under the personal umbrella policy. Defense costs include:

�  Payment of attorney�s fees.

�  Premiums on appeal bonds.

�  Court costs.

�  Interest on the judgment.

�  Legal costs.

However, some personal umbrella policies will include the cost of defending the insured as part of the total loss. It is possible that in a catastrophic judgment the insured may have to absorb part of the loss. Still, most umbrella policies will provide and pay the legal defense costs of a covered loss if that loss is not covered by any underlying insurance.

Personal Umbrella Exclusions

Like other types of personal property insurance, the personal umbrella provides specific exclusions to coverage. Here are some of the more common exclusions found in personal umbrella policies:

�  Worker�s compensation.

Any obligation for which the insured is legally liable under workers compensation, disability benefits, or similar law is not covered by the umbrella.

�  Fellow employee.

Some personal umbrella contracts exclude coverage for any insured (other than the named insured) who injures a fellow employee in the course of employment arising out of the use of any of the following:

�  Automobile.

�  Watercraft.

�  Aircraft.

�  Care, custody or control.

Damage to property owned by a covered person is excluded under all personal umbrella contracts. Most contracts also exclude damage to a non-owned aircraft and non-owned watercraft in the insured�s possession. However most umbrellas will cover damage to:

�  Property rented to the insured.

�  Property used by the insured.

�  Property in the care of an insured.

Note that the umbrella contract will not cover aircraft or watercraft which fall into one of the three above categories.

�  Nuclear energy.

All personal umbrella policies contain a nuclear energy exclusion.

�  Intentional acts.

Any act directed by or committed by a covered person with the intent to cause personal injury or property damage will not be covered by the umbrella contract.

�  Aircraft.

Umbrella policies will not cover any liability arising out of ownership, maintenance, use or loading or unloading of an aircraft.

�  Watercraft.

Larger watercraft are usually excluded from umbrella coverage, including:

�  Inboard watercraft.

�  Inboard/outboard watercraft exceeding 50 horsepower.

�  Outboard motors of more than 25 horsepower.

�  Sailing vessels of more than 26 feet long.

�  Professional liability.

While many insurance companies do not offer this coverage and virtually all umbrella policies exclude professional liability, some companies will cover certain professional liability losses with an endorsement and by charging a higher premium.

�  Officers and directors.

This exclusion does not apply to a non-profit corporation or organization. It does exclude coverage for an act or failure to act as an officer, trustee or director of a corporation or association.

�  Recreational vehicles.

Liability arising as a result of ownership or maintenance of golf carts is excluded.

Watercraft Insurance

The homeowners policy only provides limited coverage for watercraft owned by the homeowner. As a result, the homeowner must obtain separate coverage under a watercraft policy in order to fully protect watercraft from loss. Watercraft insurance can cover various watercraft which range in size, such as:

�  Rowboats.

�  Canoes.

�  Outboard motorboats.

�  Inboard motorboats.

�  Dinghies.

�  Sailboats.

�  Speedboats.

�  Houseboats.

�  Yachts.

Hull and Trailer Loss Exposures

Watercraft as well as their equipment, trailers and furnishings may be exposed to a wide variety of theft and physical damage loss. Examples of possible damage or loss include the following:

�  Two speedboats collide.

�  A sailboat is overturned in heavy winds.

�  A boat sinks in a severe storm.

�  A sandbar strands a houseboat.

�  An outboard motor falls into a lake.

�  A boat trailer is stolen.

�  An explosion seriously damages a boat.

Homeowners Policy Physical Damage Coverage

Watercraft and trailers are covered under Section One of a homeowners policy for physical damage and theft. However this coverage is very limited. The major limitations on coverage are as follows:

�  Direct loss to:

�  Watercraft.

�  Trailers.

�  Furnishings.

�  Equipment.

�  Outboard motors from windstorm or hail are covered ONLY if the property is inside a fully enclosed building.

�  Theft of:

�  Watercraft.

�  Trailers.

�  Furnishings.

�  Equipment.

Outboard motors away from the resident premises are specifically excluded. Watercraft and other boating property are covered only for a limited number of named perils.

�  Coverage on each of:

�  Watercraft.

�  Trailers.

�  Furnishings.

�  Equipment.

� is limited to a maximum of $1,000.

Personal Auto Policy Personal Damage Coverage

An automobile policy is not designed nor does it cover any physical damage to boats. The boat trailer however can be insured for physical damage loss under a personal auto policy. The trailer must be described fully in the declarations of the auto policy.

Liability Loss Exposure

When an insured owns or operates watercraft, the insured may be exposed to a wide variety of liability loss exposure, such as:

�  A water-skier is injured because of excessive speed.

�  A boat runs into swimmers and seriously injures them.

�  A boat collides with a dock causing property damage.

�  Two boats collide injuring the occupants.

�  A child falls overboard and drowns and was not provided a life preserver by the boat operator.

Homeowners Policy Liability Coverage

Section II of a homeowners policy provides personal liability insurance and it covers certain watercraft loss exposures providing the boat is under a specified size and length. Personal liability insurance provides the insured with protection against bodily injury or property liability that arises out of the use or operation of certain owned watercraft. The liability protection can also apply on an excess basis for certain covered non-owned watercraft.

There are however several important categories of watercraft liability that the homeowners policy excludes from coverage. These include:

�  Owned watercraft regardless of size with inboard or inboard/outboard motor power.

�  Rented watercraft with an inboard or inboard/outboard motor power with more than 50 horsepower.

�  An owned or rented sailing vessel that is more than 26 feet in length.

�  Watercraft powered by one or more outboard motors with more than 25 horsepower if the motors were owned by the insured at the inception of the policy and not declared or reported. However, watercraft powered by outboard motors with more than 25 horsepower are covered if the motors were acquired prior to the policy period and providing the insured declared them at the time of policy inception or declared them within forty-five days of acquisition.

The above exclusions do not apply when the craft is in storage.

Outboard Motor and Boat Insurance

This specific type of watercraft insurance is designed for those who own motorboats and for those who have adequate personal liability coverage under their homeowners policy or under a comprehensive personal liability policy but desire broader physical damage insurance on their boat. An Inland Marine Floater can also provide this protection. Although floaters are not standard they do contain some common features such as:

�  Covered property.

The insured selects the property to be insured. The floater can be written to cover the following:

�  Hull.

�  Motor or motors.

�  Boat equipment.

�  Boat accessories.

�  Boat carrier.

�  Boat trailer.

Covered property is written on an actual cash value basis and may contain a deductible of $25, $50, $100 or some greater amount.

�  Covered Perils.

The floater can be written on named perils or risks of direct loss basis. Most floaters currently are written on the risks of direct loss basis. The coverage does not include the liability for bodily injury, loss of life, or illness of individuals.

It is assumed that the insured has proper liability insurance under a homeowners or liability policy to cover any third party bodily injury claims. The floater, however, may provide collision damage liability insurance that protects the insured from a claim for property damage from the owner of another boat if the insured�s boat happens to collide with another boat while it is afloat.

Outboard Motor and Boat Insurance Exclusions

Outboard motor and boat insurance contracts do have exclusions. Some of the common exclusions are as follows:

�  Business pursuits.

�  No coverage will be afforded if the boat is used as a public conveyance for carrying passengers for compensation.

�  No coverage will be provided if the boat is rented to others.

�  Coverage is excluded for race boats or boats in speed contests.

�  Repair or service. Coverage is excluded for loss or damage from:

�  Refinishing.

�  Renovating.

�  Repair is not covered. The person who is repairing the boat would be responsible for any damage.

�  General risks of direct loss. Coverage will not be provided for loss or damage from:

�  Wear and tear.

�  Gradual deterioration.

�  Vermin.

�  Marine life.

�  Rust.

�  Corrosion.

�  Inherent vices.

�  Latent defect.

�  Mechanical breakdown.

�  Freezing.

�  Extremes of temperature.

Watercraft Package Policies

Many insurance companies have developed special boat owners policies that combine liability coverage, physical damage coverage, and medical payments coverage.

These boat owners policies contain certain common characteristics:

�  Physical damage coverage.

Currently most boat owners policies are written on a direct and accidental loss basis. The insurance company agrees to pay for direct or accidental loss to covered property under the physical damage insuring agreement. All losses are covered except those specifically excluded.

The physical damage covers the boat, equipment, accessories, motor, and trailer.

In addition, if the boat collides with another boat, gets damage from heavy winds, or is stolen, the loss is covered.

�  Liability coverage.

Liability insurance that covers the insured for bodily injury and property damage, liability from a neglect ownership or operation of the boat, is included in a boat owner�s policy. Should the insured accidentally damage another boat or injure swimmers, for example, protection is provided under the liability coverage.

�  Medical payments coverage.

This is similar to the medical payments coverage found in an automobile insurance contract. Medical payments will be made for all medical expenses incurred within three years from the date of a watercraft accident that causes bodily injury to a covered person.

Under medical payments coverage, a covered person is defined as the insured, a family member, or any person while occupying the covered watercraft.

Under the medical payments coverage section, expenses will be paid for reasonable charges for the following:

�  Medical.

�  Surgical.

�  X-ray.

�  Dental.

�  Ambulance.

�  Hospital.

�  Professional nursing.

�  Prosthetic devices.

�  Funeral services.

�  Other coverage. The following may also be found in a boat owners policy:

�  Cost of removing a wrecked vessel.

�  Cost of removing a sunken vessel.

The following are commonly excluded from physical damage coverage under a boat owners policy:

�  Wear and tear.

�  Inherent vice.

�  Latent defect.

�  Mechanical breakdown.

�  War.

�  Nuclear hazard.

�  Damage caused by repair (except fire).

�  Damage caused by restoration process (except fire).

�  Carrying persons for a fee.

�  Carrying property for a fee.

�  Renting covered property.

�  Racing covered property (except sailboats).

�  Speed testing covered property (except sailboats).

�  Infidelity of persons to whom covered property is entrusted.

�  Portable electronic equipment.

�  Photographic equipment.

�  Water sport�s equipment.

�  Fishing gear.

�  Cameras.

�  Fuel.

�  Portable radios.

�  Fishing equipment.

The following are commonly excluded from medical expense coverage under a boat owners policy:

�  Intentional injury.

�  Intentional damage.

�  Renting the watercraft to others.

�  Carrying persons for a fee.

�  Carrying property for a fee.

�  Using watercraft in a race (except sailboats).

�  Using watercraft in a speed test (except sailboats).

�  Losses covered under worker�s compensation.

�  Losses by a nuclear energy liability policy.

�  Contractual liability.

Personal Yacht Insurance

This type of policy is for larger boats such as inboard motorboats and cabin cruisers. Personal Yacht insurance provides hull insurance, protection and indemnity insurance, optional coverage and warranties.

�  Hull insurance.

This protection refers to physical damage on the boat. This coverage also applies to sails, tackle, machinery, furniture, and the boat itself.

This insurance provides �all-risks� protection. For example if the boat is damaged by: heavy seas, collision, flood or sinking because of an insured peril, the loss is covered. A deductible of varying amounts will apply to all physical damage and losses.

�  Protection and indemnity insurance.

This coverage provides the boat owner with coverage for bodily injury and property injury on an indemnity basis. If for example the boat were to smash into a marina and injures several persons the loss to the dock as well as any bodily injury would be covered under Protection and Indemnity Insurance.

�  Optional coverage.

The boat owner may add several options to your personal yacht policy, such as, medical payments coverage, liability of the insured to maritime workers injured in the course of employment, boat trailer insurance, land transportation insurance and a water-skiing clause.

�  Warranties.

Several warranties and promises are provided with yacht insurance. If the insured violates a warranty, higher premiums may be required to be paid to the insurance company.

The major warranties on yacht insurance are as follows:

�  Seaworthiness warranty.

The insured warrants that the vehicle is in seaworthy condition.

�  Lay-up warranty.

The insured warrants the vehicle will not be in operation during certain periods, such as winter months.

�  Navigational limits warranty.

The vessel will be used only in territorial waters described in declarations.

�  Private pleasure warranty.

The insured warrants the vessel will not be hired or chartered.

Uninsured Boaters Coverage

As is the case with automobile insurance where an individual can purchase uninsured motorist protection, boat packages also include an option for uninsured boat coverage. The company agrees to pay damages that a covered person is legally entitled to recover from an insured boat owner or operator due to bodily injury sustained by a covered person in a boating accident.

Uninsured Boaters Coverage � Exclusions

The uninsured boater�s coverage has several exclusions. Bodily injury from the following are excluded:

�  While occupying or struck by any watercraft owned by the insured or family member that is not insured under the policy.

�  If the bodily injury claim is settled without the insurance company�s consent.

�  While operating a covered watercraft which is carrying persons or property for a fee.

�  While occupying a covered watercraft being rented to others.

�  Using a watercraft without a reasonable belief that the person is entitled to do so.

�  Occupying a watercraft without the reasonable belief that the person is entitled to do so.

In the event there should be a disagreement as to whether a covered person is legally entitled to recover damages from the uninsured boat owner or operator, or on the amount of damages, the coverage has an arbitration provision which states that each party selects an arbitrator. The two arbitrators then select a third arbitrator. Those arbitrators have thirty days to agree on the selection of the third arbitrator. If the two arbitrators take longer than thirty days to identify the third arbitrator, then a judge in a court of law will be permitted to appoint the third arbitrator.

Specialized Coverages

As your clients become involved in business transactions, their needs for insurance will increase and may include a need to protect goods in transport.

Marine insurance is a broad term including ocean and inland marine insurance. The Nationwide Marine Insurance Definition, published by the National Association of Insurance Commissioners, includes imports, exports, domestic shipments, and means of communications, and personal and commercial property floaters as marine insurance. In this section, we will discuss various types of specialized Marine Insurance.

Ocean Marine Specialized Coverage

First we cover specialized coverage which applies to Ocean Marine policies.

�  Bumbershoot liability.

Bumbershoot coverage is a particular form of umbrella liability designed for accounts where the principal exposure is marine and involves the operation of vessels and use of docks.

The Bumbershoot covers: protection and indemnity; general coverage, collision, salvage charges, labor; all other legal and contractual liability including employers liability, liability under admiralty laws or the Longshoremen�s Act, automobile liability, and those hazards usually associated with general liability insurance. Insured�s net retention of at least $100,000 is usually required.

�  Charter boats.

Standard protection and indemnity forms issued in conjunction with Hull insurance policies on vessels exclude coverage on the use of a boat for hire or charter. Under certain circumstances, a Protection and Indemnity form, broader in coverage than a standard general liability contract, is issued to an owner or operator of such a vessel used for carrying passengers for sightseeing, fishing, transportation, entertainment or marine observations on a fee basis.

Coverage for liability also may be arranged on a liability form with rates set in the specialty market at a surcharged rate. Vessels under 40 feet in length are rated at 50% of those over 40 feet. Coverage usually is subject to a deductible. Liability exposure is of more concern to underwriters than loss or damage to the hull.

Operation of a restaurant and serving of alcoholic beverages are also principal hazards on larger vessels.

�  Ship charterer legal liability.

This insurance is designed to protect a vessel charterer against liability incurred for loss of, or damage to, the vessel. Liability is ordinarily limited to damage caused in loading or unloading or failure to provide a safe berth. Policies may be written on an open basis with a flat premium charged for each voyage, or each voyage may be written separately.

�  Ship repairer legal liability.

This coverage protects an individual ship repairer, marina or boat yard operator for legal liability to the vessel�s owner for damage to the vessel being repaired. This �care, custody or control� coverage provides only property damage liability and may be extended to include insured�s legal liability for damage to other property caused by a collision (or otherwise), while the vessel is being repaired or tested.

Inland Marine Specialized Coverage

When clients become involved in business they will develop very specialized needs. Specialized coverage may also be obtained under an Inland Marine policy. Different types of specialized coverage include:

�  Builders� risk.

Builders� Risk policies cover buildings or structures during the construction, renovation or repair process. While coverage is often tailored to meet the needs of each customer, the vast majority of policies also cover building materials destined to become a permanent part of the building or structure. This property is covered while in transit, at temporary storage locations and while stored at the job site.

Builders� Risk policies are an important insurance product within the construction industry because the vast majority of banks require evidence of Builders� Risk insurance prior to closing on a construction loan.

In addition, two of the most frequently used construction contracts (the Association of General Contractors and the American Institute of Architects Contract for Construction) contain specific provisions outlining requirements for Builders� Risk insurance.

Even putting these requirements aside, few, if any, companies can afford to invest in construction without insurance protection.

Any business entity with a financial interest in property under construction, renovation or repair needs Builders� Risk insurance. Typical policyholders include:

�  Real estate developers.

�  Building owners.

�  Home builders.

�  General contractors.

�  Municipalities.

�  Colleges and universities.

�  Computerized business equipment.

Computerized Business Equipment policies can cover all types of automated equipment capable of accepting and processing data. While we typically think of computers as the primary subject of this coverage, automated manufacturing equipment, computerized medical equipment, flight simulators and any number of other types of specialized equipment can be eligible for coverage.

Coverage may also include the software and data used by this equipment as well as business income and extra expense exposures that may arise for a loss to such equipment or data. Coverage typically applies on-premises, while in transit and while temporarily away from covered locations. Laptops and portable computers are covered worldwide.

Technology represents a significant investment to many businesses. Computerized Business Equipment coverage is important to any business entity that relies on technology in their daily operations. The greater the dependence on technology, the more important it becomes to purchase specialized coverage on such a critical aspect of operations.

�  Contractor�s equipment.

Contractor�s Equipment Coverage can cover scheduled, leased and miscellaneous property of the contractor. In addition, this coverage may be extended to include any similar property of others for which the contractor may be liable.

This coverage can be further extended to include:

�  Additionally acquired equipment coverage extending up to the policy limit for equipment which the insured buys, leases, rents or borrows for defined period of days.

�  Rental expense reimbursement coverage, which pays up to a defined limit for rental expenses in the event that covered equipment is damaged in a covered loss.

�  Installation floater coverage extends to property intended for installation while at a job site, at any other location, or in transit.

�  Valuable papers coverage provides insurance for items such as blueprints and other documents of value to the contractor.

Contractors Equipment is owned or leased to perform a specific function. Use of the equipment is directly related to generating revenue, fulfilling a contract or providing maintenance. Without working equipment or the means to replace equipment as soon as possible, a contractor�s obligations cannot be fulfilled.

The Contractors Equipment policy helps owners expedite the repair or replacement of damaged or stolen equipment. In addition, because of the high cost of the equipment many banks and lending institutions require insurance on the equipment.

Any business entity with a financial interest in construction or other heavy equipment needs Contractors Equipment insurance.

Typical policyholders include:

�  Real estate developers.

�  Building owners.

�  Home builders.

�  General contractors.

�  Municipalities.

�  Street and road contractors.

�  Excavation contractors.

�  Port facilities.

�  Warehouse operators.

�  Fine arts.

Corporations and commercial accounts may have valuable works of art not specially covered as Fine Arts under standard package policies and Marine coverage fits the bill.

Fine Arts coverage extends to works of art at a permanent location, in transit and while loaned to others. Agreed Value Fine Arts coverage ensures that collections are treated properly with a form that addresses the specific collection needs, with availability of breakage coverage, special pairs and sets coverage, and flood and earthquake coverage.

For significant corporate collections, or for artwork and collectibles in commercial settings, insurers offer comprehensive coverage for a broad spectrum of paintings, sculpture, prints and multiples, as well as more specialized collections of historical, cultural or technological significance.

�  Installation coverage.

Installation policies insure building materials and components, machinery, and specialized equipment while being installed in a building or structure or erected or fabricated at a specific location. Typical types of property include heating, ventilating, air conditioning and electrical systems; and wallboard, tile, carpeting and other interior finish material.

More specialized installations include wastewater treatment facilities and controls, pipelines, electrical, telephone and cable television lines; and radio and cellular telephone towers.

Coverage is typically effective from the time the customer�s financial interest in the property begins until the interest ceases, including while the property is in transit, at temporary storage locations and while stored at the job site.

The vast majority of Installation policies are written for subcontractors (trade subcontractors in particular). Any business entity having a financial interest in property being installed, erected or fabricated may have a need for Installation coverage.

Typical policyholders include:

�  Specialty contractors.

�  Government authorities and municipalities.

�  Utilities (water, gas, telephone, electrical).

�  Manufacturers, wholesalers, and retailers of machinery, equipment and materials, who also install what they sell.

Marine underwriting specialists have written all types of installation projects, including low hazard residential electrical systems and tenant finishes, helicopter assisted tower installations, and the delicate relocation of a lighthouse threatened by erosion.

Standard programs offer coverage against risks of direct physical loss or damage (subject to certain policy exclusions), or coverage tailored to a specific, complex project.

�  Manufacturers coverage.

A Manufacturers Output Policy includes coverage for the personal property of a business at specific, as well as unnamed, locations, including while in transit.

Personal property coverage includes such items as machinery, equipment, furniture, fixtures and stock, improvements, and includes any other similar property of others for which an insured is liable.

Coverage extensions include: Accounts Receivable and Valuable Papers coverage, and Fire Protection System Recharge Expense coverage.

�  Motor truck cargo legal liability.

Motor truck cargo policies insure common and contract carriers for loss or damage to cargo in their care, custody or control.

Coverage is provided on a legal liability basis as determined by the contract of carriage between the motor carrier and the shipper (pursuant to a bill of lading or other specially negotiated contract). Generally, a carrier is liable for the safe delivery of the property entrusted to it, not only while on the carrier�s vehicles, but also while temporarily at terminals awaiting shipment.

An insurer�s Motor Truck Cargo Legal Liability policy is designed to cover that liability on behalf of the carrier.

�  Museum coverage.

Some Marine policies offer coverage developed specifically to insure museum-quality objects.

The policy insures museum owned property at scheduled locations, on exhibition or on loan to other organizations. The policies also offer coverage for property in transit and the property of others for which the policyholder is legally liable.

Coverage is available for art, history, natural history, science and technology and sports museums.

Some insurers also offer coverage for specialized institutions such as aviation and automobile museums.

In the United States, there are more than 12,000 museums eligible for this coverage. The market is expected to expand as the number of specialty museums and local historical societies continues to grow. Many of these smaller museums have no coverage for their collections because they perceive that one-of-a-kind objects are invaluable and therefore uninsurable.

Although an exact replacement is not available, insurance can offer curators the opportunity to supplement the remaining collection with artifacts of the same genre to keep and preserve the mission of the museum.

�  Scheduled property.

Scheduled Property coverage is designed to cover property that is unique or unusual or which is not typically covered under any other marine or property coverage. Coverage is available to protect against risks of direct physical loss or damage (subject to certain inland marine exclusions).

Any commercial property owner with property that travels from location to location or who needs coverage for other than real property or contents is a candidate for Scheduled Property coverage.

Scheduled Property coverage is desirable for any business entity that wants insurance protection for unique property ranging from structures outdoors to movable property.

Some of the unusual types of risks eligible for this coverage include:

�  Circus rides.

�  Locomotives and rail cars.

�  Voting machines.

�  Transit systems.

�  Water storage tanks.

�  Antique cars and race cars.

�  Ski lifts.

This type of coverage may be tailored to the specific property. Coverage applies to property wherever it is located - at a specific location, in transit or at a temporary location. Valuation options of all types are available including agreed amount, actual cash value or replacement cost.

�  Transportation.

Transportation insurance typically covers a shipper�s interest in property while in transit by public motor carrier, contract carrier, railroad, air carrier, or while on the shipper�s own vehicles.

The coverage form is often extended to provide insurance for loss to property while it is being loaded and unloaded.

A Transportation policy pays up to the limit of insurance, regardless of the extent of the carrier�s legal liability or the carrier�s ability to meet its financial obligations. In today�s fast paced world, insureds don�t necessarily have time to spend collecting reimbursement from a carrier in the event of a loss, so the transportation policy covers these losses up front. Some Transportation policies also pay for certain losses even when the carrier may not be liable, such as Acts of God (flood, earth movement, etc.). And if the insured cannot collect the invoice amount from a consignee because of loss or damage during a shipment, the policy will cover the insured�s interest in the lost or damaged property.

Any business that deals in a moveable product needs coverage for incoming and outgoing shipments, whether the business is a manufacturer, a wholesaler, a retailer or a distributor.

Ocean Marine Insurance

Ocean marine policies were the first form of insurance coverage. They were written to provide financial protection for the owners of ships and cargoes in the event their property was lost at sea.

The cargo was insured from port to port. Ocean marine policies still offer this coverage today and include Ocean Cargo, Commercial Hull, Hull Builders Risk, Marina Operators, Boat Dealers, Ship Repairers, Stevedores, Wharfingers and Charterers.

Marine policies can be written to cover the movement of any legal goods. The property insured is not itemized in the policy, which is written generally to cover �goods and merchandise.�

Certain types of property are not included under the general category of �goods and merchandise� and need to be specifically covered. These excluded items include livestock, frozen foods, refrigerated meats, poultry, game, as well as bullion, securities and similar property.

The marine policy may be written not only to cover the value of the shipped goods but also import duties and freight charges.

Hazards Covered

�  Perils of the sea.

Under this coverage fall all perils which are peculiar to transportation and which cannot be prevented by any reasonable efforts of humans. Perils of the sea must be fortuitous; in other words, due to an uncontrollable action of the sea, not within the control of any person.

�  Fire.

Fire is not a peril of the sea, but the policy covers this risk. On the other hand, there is no coverage against fire which is due to the inherent combustibility of the goods being carried. Combustible cargoes sometimes are insured with special, additional coverage specified in a policy.

�  Barratry of the master.

Violation of trust of the master is covered provided it is not done in concert with the ship owner. �Barratry� is a specific term used to describe this type of maritime treachery.

�  Assailing thieves.

Although petty thievery is not covered by the policy, theft accompanied by violence is covered.

�  Jettison.

Cargo thrown overboard is covered if the property was thrown overboard in order to attempt to preserve the property from loss.

�  All other perils.

The policy covers �all other perils which shall come to the hurt, detriment or damage� of the goods. The clause would appear to make the policy cover against all risks, which is definitely not correct. It means only perils of a character similar to those insured.

�  Explosion.

Most marine policies specifically cover the risk of explosion, whether on land or sea.

�  Latent defects in machinery, hull, appurtenances.

Most marine policies are extended to cover damage caused by bursting of boilers, breakage of shafts or through any latent defects in the machinery, hull or equipment, and through faults and errors in navigation or management of the vessel.

Other Types of Ocean Marine Coverage

In addition to the specific perils listed above, Ocean Marine Policies may be modified to include each of the following types of coverage:

�  Charterers legal liability.

When a shipper contracts with a ship owner to use the owner�s vessel, this arrangement is considered a charter.

Depending on the type of charter, the charterer is held legally responsible for certain liabilities and properties of the vessel. Depending on the type of contract the charterer enters into, the charterer may become liable for certain exposures related to the operation of the vessel. There are three types of commonly used charters: 

�  Voyage charter.

A charterer who contracts the entire vessel for a single voyage or series of consecutive voyages is considered a Voyage Charterer. In a Voyage Charter, the shipper in most cases is liable for a safe berth, loading and the unloading. The ship owner retains the responsibility for navigation, operation of the vessel and all expenses.

�  Time charter.

A charterer who contracts to hire the entire vessel for a specific period of time is called a Time Charterer. In a Time Charter, the shipper is responsible for paying for the ship�s fuel and for providing a safe berth at the port of delivery. The ship owner remains responsible for navigation and the expenses of operating the vessel.

�  Bareboat charter.

A charterer who contracts to hire the entire vessel without a crew, stores or provisions is called a Bareboat Charterer. In a Bareboat Charter, the ship owner is liable for the full operation of the vessel.

�  Hull protection and indemnity coverage.

Hull policies cover physical damage losses to the vessel arising out of numerous perils, while protection and indemnity policies cover the liability of the vessel owner for bodily injury (including death) or property damage arising out of specific types of accidents.

Hull and Protection and Indemnity coverage is often tailored for each customer. Typically hull coverage is written together with the protection and indemnity coverage.

Hull policies are a necessary part of the shipping industry. Without hull coverage, a prospective buyer of a vessel will be unable to obtain a loan to finance the purchase. Hull coverage will protect the interests of the bank and the vessel owner if a loss does occur.

Protection and Indemnity policies are also necessary. Without protection and indemnity coverage, most vessels would not be permitted to sail. The majority of labor unions require that a fleet have coverage for the crewmembers in case they become ill, injured, or are killed while employed by the vessel. Without evidence of adequate Protection and Indemnity insurance, the vessels would not be manned and cargo would not leave the ports. Any commercial ship owner and/or operator of an inland/ocean-going vessel needs Hull Protection and Indemnity insurance. Typical policyholders include:

�  Container vessel owners.

�  Bulk-carrying vessel owners.

�  Tanker vessel owners.

�  Barge owners.

�  Ferry owners.

�  Heavy lift vessel owners.

�  Marina operators legal liability.

Marinas provide a number of services to the owners of private pleasure crafts including renting dock space, fueling, storage, launching and hauling.

The marina must exercise the appropriate care to protect its customers� pleasure craft, equipment on board and motors that are in the marina�s care, custody or control. If negligent in such duties, a marina may be held liable for any loss or damage to their customer�s property.

Marina Operators Legal Liability covers the insured�s liability for loss of or damage to customers� private pleasure watercraft, equipment on board and motors that are in the marina�s care, custody or control. Any individual or any entity with a financial interest in a marina or yacht club should obtain Marina Operators Legal Liability. Typical policyholders include yacht club owners and marina owners.

�  Ocean cargo.

Ocean Cargo policies cover physical loss or damage to goods and merchandise that are shipped by various types of carriers; i.e., rail, air, water, and motor truck. Besides just covering goods while in transit overseas, the coverage form can be broadened to cover the goods while temporarily stored at international and domestic warehouses, while being shipped domestically or while at a domestic or foreign processor.

Ocean Cargo coverage is tailored to meet the needs of each customer. Ocean Cargo policies are a necessary part of the shipping industry. Without Cargo coverage, international transactions would not take place.

When a bank finances the purchase of goods, the buyer is required to provide evidence of adequate insurance prior to any advancement of money.

Once proof of adequate insurance has been given to the bank, the shipment of the goods can commence. Ocean Cargo insurance typically protects the interests of the bank, the seller of the goods and the buyer of the goods.

Any individual or any entity with a financial interest in goods or merchandise being shipped internationally should obtain Ocean Cargo insurance. Typical policyholders include:

�  Multi-national companies.

�  Wholesalers and distributors.

�  Manufacturers and processors.

�  Shipping companies.

�  Importers and exporters.

�  Ship repairers legal liability.

A shipyard performing repairs on a vessel has certain responsibilities to the vessel owner for the safety of their property. The shipyard must anticipate the hazards to which the property is subject and must exercise the appropriate care to protect this property. If negligent in such duties, the shipyard may be held liable for loss or damage to this property.

When a shipyard is repairing a customer�s vessel, there is a bailment between the shipyard and vessel owner while the vessel is in the care, custody, or control of the shipyard. This bailment makes the shipyard liable for certain damages and the shipyard must exercise an ordinary degree of care to protect its customer�s property.

The Ship Repairers Legal Liability coverage form provides liability coverage for this exposure.

Ocean Marine Specialists must work with each customer to develop a coverage form that fits the specifications of the customer. The insurer�s ocean marine claim surveyors, adjusters, and settling agents must all work together providing the customer the best coverage available to meet the customer�s requirements.

�  Stevedore�s legal liability.

When a vessel enters a port, its cargo needs to either be loaded or unloaded safely and expeditiously so the vessel can set sail again with limited delays.

An independent contractor called a Stevedore is usually responsible for the loading and unloading operations at a port.

The Stevedore can be legally liable for damage to vessels, cargo, and property located on the premises they are conducting their operations on. Coverage provides protection to the Stevedore for their ordinary liability to exercise an appropriate degree of care for vessels, cargo and property in their care, custody or control.

�  Terminal operator�s legal liability.

A terminal operator can perform many functions including warehousing services such as �pick and pack� operations, labeling, inventory control and local trucking. In addition, the operator may provide a safe berth for vessels and have employees that load and unload vessels.

One common exposure that exists in all of these operations is the terminal operator�s legal liability exposure while goods and property of others are in their care, custody or control.

A terminal operator provides an extended range of services that can include operations provided by a Wharfinger, Stevedore and Warehouseman. When determining coverage needs, it is important to examine the services that the insured provides their customers.

�  Wharfingers legal liability.

When a vessel enters a port it must have a safe berth before it can be loaded or unloaded. The Wharfinger (pronounced �war-fin-jer�) provides the vessel owner with a safe berth, watches over the vessel, and exercises the appropriate care to protect the vessel from loss or damage.

The Wharfinger is held liable for the vessel while it is in their care, custody or control. They also have certain responsibilities for the safety of the vessel. This liability is the principal exposure covered by a Wharfingers policy.

Conclusion � Personal Property Insurance

As an insurance agent, you can offer an incredible variety of services and products to customers seeking personal property insurance. You can inform the customer that protection need not be confined to the standard homeowners policy, as inland marine, ocean marine and umbrella coverage can be tailored to provide the specific protection which the customer requires. If the customer is involved with a business enterprise, you and the customer must consider additional forms of coverage.

By understanding the various options available to the customer and the multiple types of personal property insurance coverage, you will be able to better service each of your customers and offer valuable counsel to existing and potential new clients.

Which of the following perils would be covered under an HO 2 policy?

Which of the following would you find in the conditions section of an insurance policy?

Which dwelling form provides the broadest coverage?

Which of the following losses would not be covered by a homeowners policy?