Principles of risk management and insuarance 12th by rejde mcnamara chapter 21

  Chapter 21 Homeowners Insurance, Section II Agenda • Personal liability insurance – – – – Section Section Section Section II II II II Coverages Exclusions Additional Coverages Conditions • Endorsements to a Homeowners Policy • Cost of Homeowners Insurance Copyright ©2014 Pearson Education, Inc All rights reserved 21-2 Personal liability insurance • Personal liability insurance protects the named insured and family members against legal liability arising out of their personal acts – The insurer pays amount for which the insured is found legally liable, up to the policy limits – The insurer also pays defense costs – The coverage is found in Section II of the Homeowners policy Copyright ©2014 Pearson Education, Inc All rights reserved 21-3 Section II Coverages • Coverage E protects the insured when a claim or suit for damages is brought because of bodily injury or property damage allegedly caused by an insured’s negligence – The coverage is broad and based on legal liability – The policy contains a per-occurrence limit – An occurrence is defined as an accident which results in bodily injury or property damage during the policy period – The insurer provides a legal defense, even if the suit is frivolous or fraudulent Copyright ©2014 Pearson Education, Inc All rights reserved 21-4 Section II Coverages • Coverage F is a mini-accident policy – Medical payments to others pays the reasonable medical expenses of another person who is accidentally injured while on an insured location, or by the activities of an insured, resident employee, or animal owned by or in the care of an insured – The insured is not required to be legally liable – Coverage does not apply to the insured or regular residents of the household, other than a residence employee – Coverage applies even if the injury occurs away from an insured location Copyright ©2014 Pearson Education, Inc All rights reserved 21-5 Section II Exclusions • Some exclusions apply to both Coverage E and Coverage F, including: – Liability arising out of the use of a motor vehicle, with some exceptions – Liability arising out of the use of an aircraft, hovercraft, or certain watercraft – Expected or intentional injury – Business activities, with some exceptions – Professional services Copyright ©2014 Pearson Education, Inc All rights reserved 21-6 Section II Exclusions – Liability arising out of the use of an uninsured location – War or other hostile military acts – Liability arising out of the transmission of a communicable disease – Bodily injury or property damage arising out of sexual molestation, corporal punishment, or physical or mental abuse – Liability arising out of the use, sale, manufacture, delivery, transfer, or possession of controlled substances Copyright ©2014 Pearson Education, Inc All rights reserved 21-7 Section II Exclusions • Several exclusions apply only to Coverage E: – Contractual liability – Property owned by the insured – Property in the care of the insured, with some exceptions – Workers compensation – Liability for a nuclear incident – Bodily injury to an insured Copyright ©2014 Pearson Education, Inc All rights reserved 21-8 Section II Exclusions • Other exclusions apply only to Coverage F: – Injury to a resident employee off an insured location – Workers compensation – Injuries that result from nuclear energy – Persons regularly residing on the insured location Copyright ©2014 Pearson Education, Inc All rights reserved 21-9 Section II Additional Coverages • The homeowners policy automatically includes several additional coverages: – Claims expenses (e.g., court costs, attorney fees) are covered in addition to the policy limits for liability damages – The insurer pays any first-aid expenses incurred for bodily injury covered under the policy – Damage to property of others pays up to $1000 per occurrence for property damage caused by an insured – Certain loss assessments are covered up to $1000 Copyright ©2014 Pearson Education, Inc All rights reserved 21-10 Section II Conditions • Limit of Liability: – The insurer’s total liability under Coverage E for all damages arising from one occurrence will not be more than the limit shown in the declarations – The insurer’s total liability for medical expenses for bodily injury to one person resulting from an accident will not exceed the Coverage F limit shown in the declarations Copyright ©2014 Pearson Education, Inc All rights reserved 21-11 Section II Conditions • Duties after a loss include: – Written notice of the event must be provided to the insurer, including the time, place, circumstances, and names of any claimants and witnesses – The injured person (or his/her representative) must provide written proof of claim and authorize the insurer to obtain copies of medical records Copyright ©2014 Pearson Education, Inc All rights reserved 21-12 Section II Conditions • An insured may not sue the insurer unless the insured has complied with the conditions required in Section II • The insurance is excess over other valid and collectible insurance, with some exceptions • No coverage is provided to an insured who concealed or misrepresented any circumstance or material fact or engaged in fraudulent conduct Copyright ©2014 Pearson Education, Inc All rights reserved 21-13 Endorsements to the Homeowners Policy • Property owners with special needs can purchase a variety of endorsements: – An inflation-guard endorsement provides for an annual pro rata increase in the limits of insurance in the Section I coverages – An earthquake coverage endorsement covers earthquakes, landslides, volcanic eruption, and earth movement – When a personal property replacement cost loss settlement endorsement is added to the policy, claims are paid on the basis of replacement cost with no deduction for depreciation Copyright ©2014 Pearson Education, Inc All rights reserved 21-14 Endorsements to the Homeowners Policy – The scheduled personal property endorsement (with agreed value loss settlement) provides additional coverage for nine classes of property (jewelry, furs, cameras, musical instruments, silverware, golfer’s equipment, fine arts, postage stamps, and rare and current coins) and the insurer agrees to pay the stated amount for a scheduled item if a total loss occurs – A personal injury endorsement is used to extend liability coverage to legal liability arising out of personal injury, e.g., false arrest, slander Copyright ©2014 Pearson Education, Inc All rights reserved 21-15 Endorsements to the Homeowners Policy – A watercraft endorsement provides liability and medical payments coverage on any inboard or inboard-outdrive powered watercraft; sailing vessels 26 feet or more in length; and watercraft powered by one or more outboard motors exceeding 25 total horsepower – A home business insurance coverage endorsement covers both business property and legal liability arising out of a home-based business – An identity theft endorsement reimburses crime victims for the cost of restoring their identity and cleaning up their credit report Copyright ©2014 Pearson Education, Inc All rights reserved 21-16 Cost of Homeowners Insurance • Major rating and underwriting factors include: – Type of construction – Location of home – Fire-protection class, which depends on the quality of the public fire department, accessibility to the fire department, water supply, and fire hydrants – Construction costs – Type of policy – Deductible amount – Insurance score: a credit-based score that is highly predictive of future claim costs Copyright ©2014 Pearson Education, Inc All rights reserved 21-17 Cost of Homeowners Insurance • Insurers also use reports that reveal the prior claim history of a home – A Comprehensive Loss Underwriting Exchange (CLUE) report shows up to five years of information on property claims, including the date of loss, type of loss, and amounts paid – The use of CLUE reports is controversial Copyright ©2014 Pearson Education, Inc All rights reserved 21-18 Exhibit 21.1 Tips for Buying a Homeowners Policy Copyright ©2014 Pearson Education, Inc All rights reserved 21-19 Exhibit 21.2 Examples of Wide Variation in Annual Homeowners Premiums Copyright ©2014 Pearson Education, Inc All rights reserved 21-20 Exhibit 21.2 Examples of Wide Variation in Annual Homeowners Premiums (continued) Copyright ©2014 Pearson Education, Inc All rights reserved 21-21 Exhibit 21.2 Examples of Wide Variation in Annual Homeowners Premiums (continued) Copyright ©2014 Pearson Education, Inc All rights reserved 21-22 ... reserved 21- 20 Exhibit 21. 2 Examples of Wide Variation in Annual Homeowners Premiums (continued) Copyright ©2014 Pearson Education, Inc All rights reserved 21- 21 Exhibit 21. 2 Examples of Wide... reserved 21- 16 Cost of Homeowners Insurance • Major rating and underwriting factors include: – Type of construction – Location of home – Fire-protection class, which depends on the quality of the... exclusions apply to both Coverage E and Coverage F, including: – Liability arising out of the use of a motor vehicle, with some exceptions – Liability arising out of the use of an aircraft, hovercraft,