South Dakota Homeowners Insurance

South Dakota homeowners face unique risks from severe weather, making comprehensive property insurance essential. The state experiences frequent hail storms, tornadoes, blizzards, and extreme temperature fluctuations.

Standard Homeowners Policy Forms

South Dakota uses ISO (Insurance Services Office) standard homeowners forms with state modifications:

HO-3 Special Form (Most Common)

The HO-3 Special Form is the most popular homeowners policy in South Dakota:

Coverage A - Dwelling

Covers:

• Main structure of home
• Attached structures (garage, deck)
• Built-in appliances and fixtures
• Building materials on premises
• Permanently installed equipment

Special Form Coverage (Named Exclusions):

• Covers ALL perils except specifically excluded
• Broader than named perils coverage
• Shifts burden to insurer to prove exclusion applies

Common Exclusions:

• Flood and surface water
• Earth movement (earthquake)
• Intentional loss
• War and nuclear hazard
• Power failure (off premises)
• Neglect and deterioration
• Birds, vermin, rodents, insects
• Wear and tear

Exam Tip: HO-3 provides "special form" coverage on the dwelling - covers everything except what's specifically excluded. This is broader than "named perils" coverage.

Coverage B - Other Structures

Covers:

• Detached garage
• Storage sheds
• Fences
• Driveways and sidewalks
• Swimming pools
• Guest house or barn (under 10% limit)

Standard Limit: 10% of Coverage A Can be increased if needed for expensive structures

Important Limitation:

• Structures used for business: limited to $2,500
• Structures rented to non-household members: limited coverage

Coverage C - Personal Property

Named Perils Coverage:

1. Fire or lightning
2. Windstorm or hail
3. Explosion
4. Riot or civil commotion
5. Aircraft
6. Vehicles
7. Smoke
8. Vandalism or malicious mischief
9. Theft
10. Volcanic eruption
11. Falling objects
12. Weight of ice, snow, or sleet
13. Accidental discharge of water or steam
14. Sudden and accidental tearing apart
15. Freezing of plumbing
16. Sudden and accidental damage from electricity

Special Limits of Liability:

Exam Tip: Special limits apply to theft of jewelry ($1,500), firearms ($2,500), and silverware ($2,500). Clients with valuable items need scheduled personal property endorsements.

Coverage D - Loss of Use

Additional Living Expense (ALE):

• Pays extra costs to maintain normal standard of living
• Hotel, temporary housing
• Restaurant meals (vs. home cooking costs)
• Laundry and other increased expenses
• Coverage continues until home is repaired or household relocates

Fair Rental Value:

• If part of home rented to others
• Pays lost rental income during repairs
• Minus expenses that don't continue

Standard Limit: 20-30% of Coverage A Time Limit: Typically shortest of:

• Time to repair or rebuild
• Time to relocate permanently
• Policy limit exhaustion

Coverage E - Personal Liability

Protects Against:

• Bodily injury to others
• Property damage to others' property
• Legal defense costs (in addition to limits)
• Medical expenses under Coverage F

Occurrence-Based:

• Covers injuries/damage during policy period
• Claim can be made later
• More favorable than claims-made

Common Liability Scenarios:

• Guest injured on property (slip and fall)
• Dog bites visitor
• Tree falls on neighbor's property
• Child damages neighbor's property
• Liability from accidents anywhere (not auto-related)

Defense Costs:

• Paid in addition to policy limits
• Insurer provides attorney
• Insurer controls defense
• Pays settlements and judgments up to limits

South Dakota Weather Considerations

Hail Damage

South Dakota ranks among the top states for hail damage:

Hail Frequency:

• Severe hail storms common May-September
• Baseball-sized hail not uncommon
• Can cause extensive roof, siding, and window damage
• Vehicles also damaged (auto policy covers)

Coverage Considerations:

• Standard HO-3 covers hail damage to dwelling
• Check deductible - percentage deductibles common (1-2% of Coverage A)
• Roof age may affect coverage (actual cash value for older roofs)
• Document damage promptly with photos

Claims Process:

• Report damage immediately after storm
• Document with photos and videos
• Get multiple repair estimates
• Insurer may use depreciation for roof age
• Understand replacement cost vs. actual cash value

Wind and Tornado Coverage

Standard Coverage:

• Windstorm and tornado damage covered under HO-3
• Same deductible as other perils (or percentage deductible)
• Covers dwelling, other structures, and personal property

Common Wind Damage:

• Roof shingles blown off
• Siding damage
• Broken windows
• Damaged outbuildings
• Trees and fences destroyed

Percentage Deductibles:

• Some policies use percentage deductibles for wind/hail (1-2% of Coverage A)
• On $300,000 home with 1% deductible: $3,000 out-of-pocket
• Lower deductible = higher premium

Winter Storm Coverage

Covered Perils:

• Weight of ice, snow, or sleet (roof collapse)
• Freezing of plumbing systems
• Ice dams causing water damage
• Fallen trees from ice/snow

Maintenance Requirement:

• Must maintain heat in home to prevent freezing
• Failure to maintain heat may void coverage
• Drain pipes if leaving home vacant in winter

Blizzard Preparations:

• Clear snow from roof if accumulation excessive
• Keep heat on and pipes protected
• Document property condition before storms

Flood Exclusion

Critical Exclusion:

• Standard homeowners policies DO NOT cover flood damage
• "Flood" defined as surface water overflow
• Spring snowmelt flooding common in SD
• Missouri River and other waterways flood risk

National Flood Insurance Program (NFIP):

• Federal program providing flood insurance
• Available through participating insurance agents
• Separate policy and premium required
• 30-day waiting period before coverage effective
• Covers building and contents separately

NFIP Coverage Limits:

• Residential building: up to $250,000
• Personal property: up to $100,000
• Separate deductibles for building and contents

Exam Tip: FLOOD is NOT covered by homeowners insurance. Clients in flood-prone areas need separate NFIP flood insurance. Spring snowmelt creates flood risk in many SD areas.

Policy Provisions and Conditions

Replacement Cost vs. Actual Cash Value

Replacement Cost:

• Cost to repair/replace with similar materials
• No deduction for depreciation
• Standard for Coverage A (dwelling)
• Available as upgrade for Coverage C (personal property)

Actual Cash Value:

• Replacement cost minus depreciation
• Standard for Coverage C (personal property) unless upgraded
• May apply to older roofs even on dwelling

Replacement Cost Settlement - Coverage A:

1. Insurer pays ACV immediately
2. Policyholder repairs/rebuilds
3. Submits receipts
4. Insurer pays remaining replacement cost

Important: Must actually repair/replace to receive full replacement cost

Coinsurance and the 80% Rule

Not applicable to homeowners policies (applies to commercial property)

However, insurers encourage adequate Coverage A limits:

• Replacement Cost Guarantee Endorsements - Pay more than Coverage A if rebuild costs exceed limit
• Inflation Guard Endorsements - Automatically increase limits annually
• Extended/Guaranteed Replacement Cost - Pay 125-150% of Coverage A if needed

Deductibles

Standard Deductible:

• Flat dollar amount: $500, $1,000, $2,500
• Applies per occurrence
• Higher deductible = lower premium

Percentage Deductible:

• Percentage of Coverage A (1-2% common for wind/hail)
• Example: $300,000 home, 1% deductible = $3,000 deductible
• Used in high-risk areas for certain perils

Separate Deductibles:

• May have separate higher deductible for wind/hail
• Named storm deductibles in some policies
• Standard deductible applies to other perils

Duties After Loss

Policyholder Must:

1. Give prompt notice - Notify insurer immediately
2. Protect property - Prevent further damage (cover holes, board windows)
3. Cooperate with investigation - Answer questions, provide access
4. Prepare inventory - List damaged/destroyed property
5. Show damaged property - Make available for inspection
6. Submit sworn proof of loss - Within 60 days if required
7. Submit to examination under oath - If requested

Failure to comply may result in claim denial

Loss Settlement Process

Standard Process:

1. Policyholder reports claim
2. Insurer assigns adjuster
3. Adjuster inspects damage
4. Adjuster prepares estimate
5. Insurer issues payment (ACV initially for dwelling)
6. Policyholder completes repairs
7. Insurer pays remaining replacement cost

Timeframes:

• South Dakota requires prompt claims handling
• Acknowledge claim quickly (typically within days)
• Begin investigation promptly
• Issue payment within reasonable time after agreement

Common Endorsements

Scheduled Personal Property (Inland Marine)

Purpose: Increase limits for valuable items beyond special limits

Common Scheduled Items:

• Jewelry and watches
• Furs
• Cameras and electronic equipment
• Musical instruments
• Silverware and goldware
• Fine arts and collectibles
• Golf equipment
• Firearms

Benefits:

• Higher limits (actual value)
• "All-risk" coverage (broader than named perils)
• No deductible
• Worldwide coverage
• Must provide appraisals for high values

Water Backup Coverage

Covers:

• Sewer and drain backup
• Sump pump failure/overflow
• Water from below ground

Why Needed:

• NOT covered in standard policy
• Common problem in spring with heavy rains
• Can cause extensive basement damage

Typical Limits: $5,000 - $25,000

Increased Replacement Cost

Options:

• Extended Replacement Cost - Pays up to 125% of Coverage A
• Guaranteed Replacement Cost - Pays full cost to rebuild regardless of Coverage A limit

When Useful:

• Rapid construction cost increases
• Unique or custom homes
• Uncertainty about rebuild costs

Personal Property Replacement Cost

Upgrades Coverage C from ACV to Replacement Cost:

• No depreciation deduction
• Higher premium
• Recommended for most clients

Identity Theft Coverage

Provides:

• Reimbursement for expenses recovering from identity theft
• Legal fees, lost wages, document replacement
• Fraud resolution services
• Typical limit: $15,000 - $25,000

South Dakota-Specific Considerations

Vacant and Unoccupied Property

Definitions:

• Vacant - Property empty with no furnishings
• Unoccupied - Property furnished but no one living there

Coverage Limitations:

• Most policies limit coverage if property vacant/unoccupied for 60 consecutive days
• Vandalism and malicious mischief excluded after 60 days
• Must notify insurer if property will be vacant

Common Scenario: Farmers/ranchers with multiple properties, seasonal homes

Farm and Ranch Property

Farm Dwelling Coverage:

• Similar to homeowners but with farm-specific provisions
• May cover farm structures as "other structures"
• Farm liability needs separate farm liability policy
• Equipment and livestock need separate farm coverage

Separate Farm Policies Needed:

• Farm liability
• Farm equipment and machinery
• Livestock mortality
• Crop insurance (federal program)

Manufactured Homes

Special Considerations:

• Must be permanently affixed to foundation
• Separate manufactured home policies available
• May have higher wind/hail deductibles
• Transport coverage if moving home

Claims Handling Requirements

South Dakota Requirements

Prompt Handling:

• Acknowledge claims promptly
• Begin investigation without unnecessary delay
• Communicate clearly with policyholders
• Pay claims promptly once liability established

Unfair Claims Practices Prohibited:

• Misrepresenting policy provisions
• Failing to acknowledge claims promptly
• Failing to adopt reasonable standards for investigations
• Not attempting good faith settlement
• Compelling litigation through unreasonable offers
• Delaying investigation or payment without reason

Penalties for Violations:

• License suspension or revocation (producers)
• Fines and penalties (insurers)
• Bad faith claims and damages

Exam Tip: South Dakota requires prompt and fair claims handling. Unreasonable delays or low-ball offers violate unfair claims practices laws.

Summary: South Dakota Homeowners Insurance

Key Points: ✓ HO-3 Special Form most common - special coverage on dwelling, named perils on personal property ✓ Severe weather (hail, wind, tornadoes) major risk - comprehensive coverage essential ✓ Flood NOT covered - separate NFIP policy needed ✓ Replacement cost standard for dwelling, ACV for personal property unless upgraded ✓ Special limits apply to jewelry, firearms, money, securities ✓ Endorsements available for scheduled property, water backup, increased limits ✓ Maintain adequate Coverage A limits - use inflation guard or guaranteed replacement cost ✓ Understand deductibles - percentage deductibles common for wind/hail ✓ Prompt claims reporting and cooperation required ✓ South Dakota requires fair and prompt claims handling