It’s been awhile since I added to my list of examples of subtle but possibly significant differences between insurance policies of the same type issued by different insurers. This one does not involve a loss (that I know of,) but I thought it was interesting enough to cite as another example of why it’s important to have copies of coverage forms on hand to review.
A member wrote in the other day about a client who owns a piece of vacant land with her daughter. They’re going to have a house built on the land, and the daughter will live there. The member had questions about liability coverage for both mother and daughter.
Every Homeowners insurance policy that I’ve reviewed has a particular exclusion in the Liability Coverage section. This exclusion states that the Personal Liability and Medical Expenses Coverages do not apply to bodily injury or property damage arising out of a premises an insured owns, rents, or rents to others if that premises is not an “insured location.” The term “insured location” (or a term very similar to it) is described in the policy’s definitions. We have to read that definition to know whether a specific site is an insured location. That’s where our example gets interesting.
The member sent me a copy of the definitions from his client’s policy. I compared it to the definitions in the Insurance Services Office Homeowners 3 – Special Form, HO 00 03 03 22. The good news is that both forms would cover his client and her daughter for an injury or property damage occurring on the site of the future home. However, there was still a difference:
| ISO | COMPANY X |
|
6. “Insured location” means: … f. Land owned by or rented to an “insured” on which a one-, two-, three- or four-family dwelling is being built as a residence for an “insured”; … |
6. “Insured location” means: …
f. Land owned by or rented to an “insured” on which a one- or two-family dwelling is being built as a residence for an “insured”; … |
The member’s client’s policy provides Liability Coverage on a premises where a one- or two-family residence is being built. The ISO form provides Liability Coverage on a premises where a residence with up to four units is being built. If this insured was building a four-family home on the site, a carrier using the ISO form would provide Liability Coverage, but this particular carrier would not.
There’s nothing illegal or necessarily wrong about what this carrier has written into its form. It’s just a small detail that would most likely not be noticed unless and until a loss happened where coverage would hinge on how many units were in the home being constructed. A Homeowners policy is a contract and both parties (insurer and insured) must abide by its terms. If an insured pays a premium for a policy that covers vacant land where a house is going up, but only if the house has no more than two units, the insured must live with that.
And this is yet more reason why no one should assume that all policies are the same. Never ask, “Does a homeowners policy cover this loss?” Ask, “Does this Homeowners policy cover this loss?”
I’m sure I’ll be back with more examples. There are always more.