5.6 Conditions
Dwelling policies include several conditions that are commonly found in property insurance policies, including the following:
| Concealment or Fraud | Duties in the Event of Loss | Pair or Set Clause |
| Appraisal | Subrogation | Abandonment |
| Mortgage Clause | No Benefit to Bailee | Liberalization Clause |
| Waiver or Change | Assignment | Death |
| Recovered Property | Loss Payable Clause | Policy Period |
The remaining conditions provide requirements and provisions that are specific to Dwelling policies. These standard provisions may be modified as necessary to comply with applicable state law.
Deductible
For each covered loss, the insurer will pay the amount of the loss that remains after subtracting the deductible listed on the Declarations page. If more than one deductible applies to the same loss, only the highest applicable deductible will be used.
Loss Settlement
DP–1
Covered property losses are settled based on the property's actual cash value at the time of the loss. However, the insurer will not pay more than the amount necessary to repair or replace the damaged property.
DP–2 and DP–3
Losses involving personal property, awnings, carpeting, household appliances, outdoor antennas, outdoor equipment, and structures that are not buildings are settled on an actual cash value basis. However, the insurer will not pay more than the amount necessary to repair or replace the damaged property.
Buildings and other structures insured under Coverages A and B are settled on a replacement cost basis, provided the Coverage A limit equals at least 80% of the building's full replacement cost immediately before the loss. The insurer will pay no more than the lowest of the following amounts:
- The applicable limit of liability
- The cost to replace the damaged portion of the building with materials of like kind and quality and for the same use
- The amount actually and necessarily spent to repair or replace the damaged building
Example
A dwelling insured under the Broad Form suffers damage when the weight of snow causes the roof to collapse. If the loss results in the complete destruction of the building, the insurer will pay no more than the policy limit, even when the replacement cost or the amount actually spent to rebuild is higher. If the dwelling sustains only a partial loss, the insurer will pay no more than the necessary amount actually spent to complete the repairs, even when the replacement cost and policy limit are higher. This reflects the principle of indemnity, which is intended to restore the insured to the financial position held before the loss without allowing the insured to profit.
The cost to repair or replace the damaged building includes ordinance or law expenses only to the extent provided by the Ordinance or Law Other Coverage. If the insured chooses to rebuild at a different location, the insurer will pay no more than the amount that would have been required to repair or rebuild the property at its original location.
If the building is not insured to the required value, the insurer will pay the greatest of the following amounts:
- The applicable limit of liability
- The actual cash value of the damaged portion of the building
- The proportion of the covered loss that the policy limit bears to 80% of the building's replacement cost
Until the damaged property is actually repaired or replaced, the insurer will pay no more than its actual cash value. This requirement does not apply when the loss is both less than 5% of the Coverage A limit and less than $2,500.
The insured may initially settle a building loss on an actual cash value basis and later claim any additional amount available under replacement cost coverage. To preserve this right, the insured must notify the insurer of the intent to repair or replace the damaged building within 180 days after the loss.
| Coverage | Basic Form (DP–1) Loss Settlement | Basic Form (DP–1) Limit of Insurance | Broad Form (DP–2) Loss Settlement | Broad Form (DP–2) Limit of Insurance | Special Form (DP–3) Loss Settlement | Special Form (DP–3) Limit of Insurance |
|---|---|---|---|---|---|---|
| Coverage A | ACV | Limit of Liability | RC | Limit of Liability | RC | Limit of Liability |
| Coverage B | ACV | 10% of Coverage A, not additional insurance | RC | 10% of Coverage A, additional insurance | RC | 10% of Coverage A, additional insurance |
| Coverage C | ACV | Insured's choice | ACV | Insured's choice | ACV | Insured's choice |
| Coverage D | — | 20% of Coverage A, not additional insurance | — | 20% of Coverage A, additional insurance | — | 20% of Coverage A, additional insurance |
| Coverage E | — | None | — | Included within the combined 20% Coverage A limit for Coverages D and E | — | Included within the combined 20% Coverage A limit for Coverages D and E |
ACV: Actual Cash Value RC: Replacement Cost
Other Insurance and Service Agreement
If another property insurance policy also covers the same property, each insurer will pay its proportional share of the covered loss.
If a service agreement, such as a home warranty, also covers the damaged property, the agreement pays first. The property policy provides excess coverage and pays only after the amounts available under the service agreement have been applied.
Suit Against Us (Suit Against the Insurer)
Before taking legal action against the insurer, the insured must comply with all policy terms and conditions. Any lawsuit must be filed within two years of the date the loss occurred.
Our Option
The insurer may choose to repair or replace any part of the damaged property using materials or property of like kind and quality. To exercise this option, the insurer must notify the insured in writing within 30 days after receiving the proof of loss.
Loss Payent
The insurer will adjust the loss with the named insured and issue payment to the named insured unless the policy identifies another payee or another party is legally entitled to receive the payment. The loss becomes payable 60 days after the insurer receives the proof of loss and one of the following occurs: the insured and insurer reach an agreement, a final court judgment is entered, or an appraisal award is filed.
Cancellation
The insured may cancel the policy at any time and for any reason. Cancellation may be completed by returning the policy to the insurer or by providing written notice that states the date the cancellation will take effect.
The insurer's right to cancel a policy is more restricted and is governed by state law. The insurer must provide advance written notice and may cancel only for legally permitted reasons. Generally, if the policy has been in effect for fewer than 60 days, the insurer may cancel it for any reason permitted by law. After the policy has been in effect for 60 days or more, cancellation is usually limited to specific reasons, such as nonpayment of premium, a material misrepresentation by the insured, or a substantial change in the insured risk.
When a policy is canceled, any unearned premium will be returned on a pro rata basis. The refund may accompany the cancellation notice, be issued when the insured returns the policy, or be provided within a reasonable period after the cancellation becomes effective.
Nonrenewal
To nonrenew the policy, the insurer must provide the insured with written notice at least 30 days before the policy's expiration date. Proof that the notice was mailed is considered sufficient evidence that proper notice was provided.
Volcanic Eruption
All volcanic eruptions occurring within the same 72-hour period are treated as a single volcanic eruption.