Recap of Chapter Eight
Personal Inland Marine
Personal Inland Marine insurance is designed to protect movable personal property that may not be adequately covered under standard property insurance policies. This type of coverage is commonly written on a worldwide basis, meaning the property may be covered wherever it is located, subject to policy terms and exclusions. Coverage is also typically provided on an open perils basis, which means losses are covered unless they are specifically excluded by the policy. Personal Inland Marine coverage is often written through specialized floaters, which insure particular classes of valuable or portable property. Common examples include jewelry, furs, fine arts, cameras, and personal effects carried by tourists or travelers.
Mobile Home Insurance
Mobile homes may be insured in several ways, depending on the type of coverage needed. Coverage may be provided under a Basic Form (DP–1) Dwelling policy, by endorsement to a Broad Form (HO–2) or Special Form (HO–3) Homeowners policy, or through a stand-alone Mobile Home policy that is similar to a Homeowners policy. Under a stand-alone Mobile Home policy, Coverage A applies to the mobile home itself and to permanently installed property, such as built-in appliances and utility tanks. Covered property is generally valued on a replacement cost basis, which means the policy is intended to pay the cost to replace damaged property with property of like kind and quality, subject to policy limits and conditions. The policy also includes a Property Removed Additional Coverage, which provides up to $500 of insurance when the mobile home must be moved to protect it from a covered peril. Because mobile homes may also face risks while being transported, a separate endorsement may be added to provide coverage for transportation-related losses, including collision.
Earthquake Insurance
Earthquake insurance may be written as a stand-alone policy to insure against earth movement caused by underground forces. This includes shaking, trembling, or other movement of the earth that results from seismic activity. For coverage purposes, all earthquakes that occur within a 72-hour period are usually treated as one earthquake. Earthquake coverage is limited by policy exclusions and conditions. The peril of sinkholes is often excluded, and coverage generally does not apply to land or underground structures. Coverage is also commonly excluded or limited for certain exterior features, such as exterior masonry veneer, unless special coverage is added. Because earthquake losses can be severe and widespread, Earthquake policies usually include a high deductible. This deductible is often written as a percentage of the applicable coverage limit rather than as a flat dollar amount.
Flood Insurance
Flood insurance is available through the National Flood Insurance Program (NFIP), a federal program administered by the Federal Emergency Management Agency (FEMA). The NFIP was created to make flood insurance available to property owners, renters, and businesses in participating communities. Because standard property policies usually exclude flood damage, the NFIP provides a separate source of protection for flood-related losses. Flood insurance may be purchased either directly through the NFIP or through the Write Your Own (WYO) Program. The WYO Program is a partnership between FEMA and private insurance companies. Under this arrangement, private insurers are authorized to write, issue, and service flood insurance policies using NFIP rules and rates. Most NFIP policies are issued through WYO companies. Policies that are not handled through the WYO Program are administered directly by FEMA.
The National Flood Insurance Program (NFIP) makes flood insurance available in eligible participating communities. These are communities that are exposed to flood risk and agree to adopt and enforce approved floodplain management and flood control measures. Communities may participate in the NFIP under either the Emergency Program or the Regular Program. The Emergency Program applies to communities in the early stages of NFIP participation. The Regular Program applies once a community has adopted the required floodplain management measures and has met additional NFIP requirements. When a licensed insurance agent writes flood insurance through the NFIP, the agent does not have authority to bind coverage immediately. In most cases, coverage begins 30 days after the applicant completes the application and pays the initial premium. This waiting period is important because flood insurance generally cannot be purchased at the last minute when flooding is already expected.
NFIP flood insurance policies may provide coverage for both residential and nonresidential buildings, as well as their contents. The amount of insurance available depends on the type of property and the program under which coverage is written. Under the Regular Program, a 1- to 4-family dwelling may be insured for up to $250,000 for building coverage. A nonresidential building may be insured for up to $500,000 for building coverage. Contents coverage may also be available, subject to separate policy limits. The policy limit may include an Increased Cost of Compliance (ICC) benefit of up to $30,000. This coverage helps pay certain costs required to bring a flood-damaged building into compliance with local floodplain management ordinances or laws. A deductible applies to flood losses. The deductible applies separately to building losses and personal property losses. The standard minimum deductible is typically $1,000.
Under the National Flood Insurance Program (NFIP), a flood is generally defined as the inundation of normally dry land by water or mudflow. This may occur when tidal waters overflow, when surface water rapidly accumulates or runs off, or when mudflow covers land that is usually dry. The NFIP definition also includes certain shoreline losses. For example, flood may include the collapse or subsidence of land along a shoreline when it is caused by unusually strong waves, currents, or other severe water activity. This definition is important because a loss must meet the policy’s definition of flood before coverage can apply.
FAIR Plan
When property owners are unable to obtain insurance through the standard insurance market, a FAIR Plan may be available as a residual market option. FAIR Plans are designed to provide access to basic property insurance for eligible risks that private insurers are unwilling to insure. FAIR Plans are administered at the state level, so eligibility requirements, coverage options, application procedures, and policy terms may vary by state. These plans do not replace the standard insurance market, but they provide an important safety net for property owners who might otherwise be unable to secure essential property coverage.
Difference in Conditions Policy
A Difference in Conditions (DIC) policy is designed to provide coverage for certain catastrophic losses and other exposures that may not be fully covered under standard property insurance policies. This type of policy is often used to fill important coverage gaps left by other insurance forms. DIC policies may include coverage for perils such as earthquake and flood, depending on the terms of the policy. Because these perils are commonly excluded or limited under standard property policies, a DIC policy can provide broader protection for property owners who need coverage for high-severity loss exposures.
Watercraft Insurance
Watercraft policies are designed to provide broader property and liability protection for boats and other types of watercraft. These policies are similar in structure to a Personal Auto policy because they may include both liability coverage and physical damage coverage.
A Boatowners policy is generally used for smaller boats, typically those under 26 feet in length. This type of policy may provide liability coverage for bodily injury and property damage, medical payments coverage for passengers, and hull coverage for physical damage to the boat itself.
A Yacht policy is intended for larger watercraft and provides coverages similar to other watercraft policies. The liability portion of a Yacht policy is commonly referred to as protection and indemnity (P&I) coverage.
Some watercraft policies include a lay-up warranty, which applies when the insured boat is placed in storage and not being used. When the boat is laid up for an agreed period, the insured may receive a return of premium because the risk of loss is reduced.
Watercraft policies also contain important exclusions. Coverage is generally excluded for watercraft that are rented to others, used as a public or livery conveyance, or hired for charter. Physical damage losses to the hull are subject to a deductible, and the deductible usually applies per occurrence.
Personal Umbrella and Excess Liability Insurance
Personal Umbrella Liability insurance and Excess Liability insurance provide an additional layer of protection for liability claims. These policies are designed to apply after the insured’s primary liability policies, such as Homeowners or Personal Auto insurance, have paid up to their applicable limits.
An Excess Liability policy increases the amount of liability coverage available, but it generally follows the same coverage terms, conditions, and exclusions as the underlying policy. In other words, it provides higher limits, but it does not usually broaden coverage.
A Personal Umbrella Liability policy may provide both higher limits and broader coverage. In some situations, an Umbrella policy can “drop down” and act as primary insurance when a claim is not covered by the underlying policy but is covered by the Umbrella. When this happens, the insured must usually pay a self-insured retention, which functions similarly to a deductible.
Umbrella and Excess Liability policies typically require the insured to maintain certain amounts of underlying insurance. If the required underlying insurance is cancelled, nonrenewed, or allowed to lapse, the Umbrella policy usually responds as though the required underlying insurance were still in place. This means the insured may be responsible for the amount the underlying policy would have paid.
Umbrella and Excess Liability policies are commonly written in coverage increments of $1 million. These policies are intended to provide substantial additional liability protection above the limits of the insured’s underlying policies.
In addition to paying covered liability claims, these policies may also provide certain supplementary benefits. These may include defense costs, premiums on required bonds, postjudgment interest, and reimbursement for reasonable expenses the insured incurs at the insurer’s request. For example, the policy may pay up to $250 per day for reasonable expenses incurred by the insured while assisting in the defense of a covered claim.
Personal Umbrella Liability policies provide broad liability protection, but they do not cover every type of loss. Like all insurance policies, they contain exclusions that limit or remove coverage for certain exposures.
Common exclusions include damage to property owned by the insured, since Umbrella coverage is designed to protect against liability to others rather than first-party property losses. Coverage is also commonly excluded for liability arising from the insured’s acts or omissions while serving as an officer or board member of a for-profit corporation.
Personal Umbrella policies also generally exclude bodily injury that is covered under Workers’ Compensation laws. In addition, liability resulting from certain pollution-related exposures, such as fuel contamination or lead contamination, is typically excluded.