08 JanUnderstanding the Most Common Coverages in a Property Policy

Regardless of the company issuing it, an insurance policy is simply a contract between the policy owner and the company providing coverage.  Each policy is different and the specific things that are covered (and not covered) will vary greatly from one policy and company to the next.  Since most consumers aren’t insurance experts, they wrongfully assume that ‘everything’s covered‘ – which simply isn’t the case.  The coverages listed below are the most common (and most misunderstood) that are available with many homeowner and dwelling policies. Not every policy contains each of the items below, so it is up to you, the ‘insured’, to make certain that the coverage you purchase and have in place is appropriate for your own specific needs.

(1) Dwelling Coverage – The dwelling coverage is the maximum amount of money available on an insurance policy to replace the main property and any attached structures such as an attached or built-in garage. The amount of coverage that you need depends on what it would cost to replace the property in the event of a total loss. This amount is usually determined by the insurance carrier based upon the physical features of the property as well as local labor and material costs.

Extended Coverages (EC9) – All property policies cover the perils of fire and lightening by default. All other coverages must be ‘endorsed’ (added) to the policy somewhere in the insurance contract in order to ‘extend’ the things that the policy provides coverage for. Extended coverage is the insurance term used to describe the additional perils (beyond basic fire and lightening) that are added in a ‘named peril’ insurance policy such as an HO-A or HO-B policy form.  Extended coverage adds insurance against loss by the perils of (1) windstorm (2) hail (3) explosion (4) riot (5) civil commotion (6) aircraft damage (7) vehicle damage, and (8) smoke damage.

Loss of Use – Coverage which provides money to pay for expenses incurred while staying in other lodging because the property is temporarily unihabitable due to a covered loss.  Such expenses include lodging, food, laundry, extra commuting expense, etc. For example, if your home were to sustain damage due to a kitchen fire, you (and your family) would need to pay for an apartment or hotel, meals, laundry services, etc while the claim was being addressed and repairs made. The ‘loss of use’ coverage would provide the funds (up to the limit listed on the policy) to pay for these and other expenses. The loss of use coverage also applies to renter’s polices due to the fact that if an apartment fire (or similar loss) occurred, the policy owner would still incur additional expenses such as those just listed.

Loss of Rental Income – for non-owner occupied properties (rental units), ‘Loss of Rents’ coverage provides 6 to 12 month’s (depending upon the policy) worth of regular monthly rental income if the property becomes unihabitable and needs repair due to a covered loss.  This coverage is designed to maintain your income stream while the property is under repair so that you can continue to make regular mortgage payments and maintain your overhead.  This is not designed to provide for lost rental income if a tenant simply moves out and the property is vacant.

Vandalism and Malicious Mischief - Vandalism and malicious mischief are generally cited as a single peril meaning willful or malicious physical injury to or destruction of property. Malicious Mischief has been added to vandalism to identify the covered peril because it has a special meaning by definition, and because it embraces a number of situations that are not technically covered by “vandalism.”  “Vandalism” means willful destruction or defacement of property while ”Malicious Mischief” implies damage to property motivated by hatred or spite.

Accidental Discharge of Water – Commonly referred to simply as ‘water damage’, this endorsement provides coverage against damage caused by accidental discharge or overflow of water or steam from within a plumbing, heating, air-conditioning or automatic fire protective sprinkler system or household appliance. Coverage includes the cost of tearing out and replacing any part of the building necessary to repair the system or appliance from which the water or steam escaped.  Damage caused by continuous or repeated seepage or leakage to the insured property (usually over a period of 14 days or more) is usually not covered – though this depends upon the insurance company issuing the policy and how they have written the policy. Generally, the cause of loss must be sudden and unforeseen, such as a burst pipe or dishwasher leak. Further, this type of loss is not covered if the dwelling has been vacant for more than 30 days immediately before the loss.

Backup of Sewers and Drains – Provides coverage against the backup (reverse flow of water) from sewers or drains located on or in the property.  Such backups are often caused by clogged sewage lines and the reulting backup of waste can cost thousands of dollars to remdiate and clean up. Often included in this endorsement are backups resulting from the failure of sump pumps for properties with basements though you should always verify this if you have a sump pump installed and this is a source of concern.

Personal Liability – This coverage is designed to provide protection against situations where legal actions result and defense and settlement costs become payable.  This coverage provides protection against ‘personal injury’ claims in the event that you are sued for false imprisonment, wrongful eviction, libel, slander, defamation of character or invasion of privacy, etc.

Premises Liability - Premises liability provides protection for the liability exposure that develops from the normal ownership, maintenance, and use of a premises, including (possibly) the tenant’s actions.  Claims may arise from such things as bodily injury occuring on the property, animal attacks, etc.

Additional Insured – There are many variations of Additional Insured endorsements, depending upon how the company has written their policy, and additional insured coverage is different than “additional named insured” coverage, and the two should not be confused. An “additional named insured” usually is an affiliate of the primary insured, such as a spouse or business partner in the property. An additional named insured may be liable for premium payments, and some exclusions from coverage apply to an additional named insured but not to an additional insured.

An Additionally Insured party listed in an insurance party is usually only covered with respect to liability claims arising out of the ongoing operations performed for that insured.