Key Takeaways
- Duties after loss include: protect property from further damage, notify insurer promptly, file police report (if theft), and submit proof of loss within 60 days
- The 80% Coinsurance Rule requires Coverage A to be at least 80% of replacement cost to receive full replacement cost benefits
- Loss Settlement is typically REPLACEMENT COST for the dwelling but ACV for personal property (unless RCV endorsement added)
- The Appraisal Clause allows disputes over loss value to be resolved by independent appraisers and an umpire
- Mortgage Clause protects the lender — the mortgagee receives payment even if the insured violates policy conditions
Homeowners Conditions
The Conditions section of a homeowners policy outlines the rules and procedures that govern the policy. Failure to comply can result in denied claims.
Duties After Loss
When a covered loss occurs, the insured must fulfill certain duties:
Immediate Duties
| Duty | Deadline | Consequence of Failure |
|---|---|---|
| Protect property | Immediately | Claim may be reduced |
| Notify insurer | As soon as practicable | Claim may be denied |
| Notify police (theft) | Promptly | Claim may be denied |
Documentation Duties
| Duty | Deadline | Details |
|---|---|---|
| Proof of loss | Within 60 days | Signed, sworn statement |
| Provide records | As requested | Inventories, receipts, photos |
| Examination under oath | As requested | Answer questions truthfully |
| Cooperate | Ongoing | With investigation |
What Proof of Loss Must Include
- Date and time of loss
- Cause of loss
- Description of damaged property
- Amount of claim
- Other insurance covering the loss
- Changes in occupancy or use
Loss Settlement Provisions
How the insurer calculates and pays claims:
Dwelling (Coverage A) Settlement
Replacement Cost — if these conditions are met:
- Coverage A ≥ 80% of dwelling's replacement cost
- Insured actually repairs or replaces
Actual Cash Value — if conditions not met:
- ACV = Replacement Cost - Depreciation
- Lower payment than replacement cost
The 80% Rule (Coinsurance)
To receive full replacement cost benefits:
Coverage A must be at least 80% of the dwelling's current replacement cost.
Example:
| Scenario | Replacement Cost | 80% Requirement | Coverage A | Result |
|---|---|---|---|---|
| Adequate | $400,000 | $320,000 | $350,000 | Full RC paid |
| Inadequate | $400,000 | $320,000 | $250,000 | Coinsurance penalty |
Coinsurance Penalty Formula:
Payment = (Carried ÷ Required) × Loss
Personal Property (Coverage C) Settlement
Default: Actual Cash Value (ACV)
With Endorsement: Replacement Cost (higher premium)
Example:
- 10-year-old TV, replacement cost $800
- ACV settlement: $800 - 50% depreciation = $400
- RC settlement: $800 (no depreciation)
Appraisal Clause
When disputes arise over the VALUE of a loss:
The Process
- Either party can demand appraisal
- Each party selects an appraiser
- Appraisers select an umpire
- Agreement of any two is binding
- Each pays their appraiser; umpire cost split
Important Notes
- Appraisal is for value disputes only
- Does NOT resolve coverage disputes
- Coverage disputes require litigation or arbitration
Mortgage Clause
Protects the lender's financial interest in the property.
Key Provisions
| Provision | Meaning |
|---|---|
| Loss payable | Checks made to both insured and mortgagee |
| Mortgagee rights preserved | Even if insured commits fraud |
| Notice of cancellation | Mortgagee gets advance notice (typically 10-30 days) |
| Mortgagee can pay premium | If insured fails to pay |
Why This Matters
The bank has a financial stake in the property. If the insured:
- Commits fraud
- Fails to pay premium
- Violates policy conditions
The mortgagee can still collect on valid claims.
Other Insurance Clause
When multiple policies cover the same loss:
Homeowners as Primary or Excess
| Situation | Homeowners Policy Role |
|---|---|
| Property on premises | Primary |
| Property away from premises | Excess over other insurance |
Pro-Rata Contribution
If two policies cover the same loss, each pays proportionally:
Policy A pays = (Policy A Limit ÷ Total Limits) × Loss
Cancellation Conditions
Insured Cancellation
- Can cancel anytime
- Written notice or policy return
- May receive pro-rata refund
Insurer Cancellation
| Reason | Notice Required |
|---|---|
| Non-payment | 10 days |
| Underwriting reasons | 30-60 days (varies by state) |
| Policy expiration | Advance notice varies |
Non-Renewal vs. Cancellation
| Action | Timing | Explanation |
|---|---|---|
| Cancellation | Mid-term | Policy terminated before expiration |
| Non-renewal | At expiration | Insurer declines to renew |
Liberalization Clause
If the insurer broadens coverage without additional premium:
- Existing policyholders automatically receive the broader coverage
- Applies during the policy period
- No action required by insured
To receive full replacement cost benefits on the dwelling, Coverage A must be at least what percentage of the dwelling's replacement cost?
The insured and insurer disagree on the value of a covered loss. Which provision allows for resolution through independent appraisers?
After a fire loss, the insured must submit a signed, sworn proof of loss statement within:
4.7 Common Homeowners Endorsements
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