HO-3 Section I Perils Insured Against and Exclusions

Study guide: Exam DISC-IA

HO-3 Section I Perils Insured Against and Exclusions are the provisions of the ISO Homeowners 3 – Special Form (HO 00 03, 05 11 edition) that decide which causes of loss Section I covers. The dwelling and other structures (Coverages A and B) are insured on an open perils basis, against any direct physical loss that isn't excluded, while personal property (Coverage C) is insured only against sixteen named perils; the Section I exclusions then remove causes of loss from both.

$\text{Covered}_{A,B} = \{\text{direct physical loss}\} \setminus \text{Excluded}_{A,B}$

$\text{Covered}_{C} = \Big(\bigcup_{k=1}^{16} P_k\Big) \setminus \text{Excluded}$

Symbols: $\text{Excluded}_{A,B}$ is the set of losses removed by the exclusions written into the Coverage A and B perils and by Section I exclusions A and B. $P_k$ is the $k$ -th named peril for Coverage C, read with its own qualifications, and Excluded is Section I exclusion A. The burden differs: under open perils a loss is covered unless the insurer shows an exclusion applies, and under named perils it is covered only if it fits a named peril.
Coverages A and B, what is excluded within the peril: The insurer insures against direct physical loss to the dwelling and other structures, except loss (a) excluded under Section I exclusions; (b) involving collapse, other than the additional coverage for abrupt collapse; or (c) caused by: (1) freezing of plumbing, heating, air conditioning, sprinkler systems or appliances, unless the insured took reasonable care to maintain heat or to shut off and drain the water; (2) freezing, thawing, pressure or weight of water or ice to a fence, pavement, patio, swimming pool, foundation, retaining wall, or pier, wharf or dock; (3) theft in or to a dwelling under construction, or of its materials, until finished and occupied; (4) vandalism, and loss from a wrongful act committed during it, if the dwelling was vacant for more than 60 consecutive days before the loss; (5) mold, fungus or wet rot, unless hidden inside walls, ceilings or floors and caused by an accidental discharge of water from a plumbing system, appliance or off-premises pipe; or (6) wear and tear, deterioration, mechanical breakdown, latent defect, inherent vice, smog, rust, corrosion, dry rot, smoke from agricultural smudging or industrial operations, pollutants (unless released by a Coverage C peril), settling and cracking of foundations, walls, floors and the like, birds, rodents or insects, nesting or infestation by animals, and animals owned or kept by an insured.
The water exception and ensuing loss: Despite (6), accidental discharge or overflow of water or steam from an off-premises storm drain or water, steam or sewer pipe, or from a plumbing, heating, air conditioning or sprinkler system or household appliance on the premises, is covered, including tearing out and replacing part of the building to repair the system. The system or appliance itself is not covered, and a sump pump, roof drain or gutter is not a plumbing system here. Any ensuing loss to the dwelling or other structures that is not otherwise excluded is covered.
Coverage C, the sixteen named perils: (1) fire or lightning; (2) windstorm or hail, which covers watercraft only inside a fully enclosed building and covers rain, snow, sleet, sand or dust inside a building only if wind or hail first makes an opening in the roof or a wall; (3) explosion; (4) riot or civil commotion; (5) aircraft, including self-propelled missiles and spacecraft; (6) vehicles; (7) smoke, sudden and accidental, including puffback from a furnace, but not agricultural smudging or industrial operations; (8) vandalism or malicious mischief; (9) theft, including attempted theft and property missing from a known place when it has likely been stolen; (10) falling objects, but property inside a building only if the roof or an outside wall is first damaged by the object; (11) weight of ice, snow or sleet that damages property inside a building; (12) accidental discharge or overflow of water or steam from a plumbing, heating, air conditioning or sprinkler system or household appliance; (13) sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot water heating system, air conditioning or sprinkler system, or water heater; (14) freezing of those systems or appliances, if reasonable care was taken; (15) sudden and accidental damage from artificially generated electrical current, but not to tubes, transistors or circuitry in electronics and appliances; and (16) volcanic eruption, other than earthquake or tremors.
What theft does not include: Theft committed by an insured; theft in or to a dwelling under construction; theft from a part of the residence premises rented to someone other than an insured; and, off the residence premises, theft of trailers, campers and watercraft, or theft of property at another residence of an insured unless the insured is temporarily living there. A student's property is covered at the residence the student occupies to attend school if the student has been there at any time in the 90 days before the loss.
Section I exclusions, part A (all coverages): Loss caused directly or indirectly by any of these is excluded whatever other cause contributes, concurrently or in any sequence: (1) ordinance or law, beyond the ordinance or law additional coverage, including loss in value and pollutant cleanup orders; (2) earth movement — earthquake, landslide, mudslide, subsidence, sinkhole and any other earth sinking, rising or shifting, natural or not; (3) water — flood, surface water, waves, tides, storm surge and overflow of a body of water, water that backs up through sewers or drains or overflows from a sump, water below the ground surface, and waterborne material, including release from a dam or levee; (4) power failure off the residence premises, though a covered peril it causes on the premises is covered; (5) neglect to use reasonable means to save and preserve property at and after a loss; (6) war; (7) nuclear hazard; (8) intentional loss, which bars every insured, even ones who took no part; and (9) governmental action seizing or destroying property, except to stop the spread of a fire. Direct loss by fire, explosion or theft that results from earth movement or water is covered.
Section I exclusions, part B (Coverages A and B only): Weather conditions, but only where they combine with an exclusion in part A; acts or decisions, including failures to act, of any person, group or governmental body; and faulty, inadequate or defective planning, zoning, siting, design, workmanship, construction, materials or maintenance. Any ensuing loss not otherwise excluded is covered.

A Burst Pipe A water supply pipe inside a wall bursts from age, not freezing, and floods the living room. Repairing the pipe costs $400, opening and replacing the wall to reach it costs $2,500, the soaked hardwood floor costs $6,000, and a sofa and rug worth $3,000 are ruined. Mold has also grown inside the wall. Which parts are covered?

Answer

Pipe, $400: not covered. The accidental discharge exception covers damage from the water, not the system it escaped from, and the pipe's own failure is wear and tear.

Wall tear-out, $2,500, and floor, $6,000: covered under Coverage A. The exception covers loss from accidental discharge from a plumbing system, including tearing out part of the building to repair the system.

Sofa and rug, $3,000: covered under Coverage C by named peril 12, accidental discharge or overflow of water from a plumbing system.

Mold: covered, because it is hidden inside the wall and results from an accidental discharge from a plumbing system.

Rain Through an Open Window During a windstorm the insured leaves a window open, and rain blows in, staining the drywall and ruining a $1,200 leather chair. Wind does not damage the house. Which losses does the HO-3 cover?

Answer The drywall is dwelling property under Coverage A, on an open perils basis. Rain blowing through a window is not among the exclusions in the Coverage A and B perils or in Section I exclusion A, so the drywall is covered. The chair is personal property under Coverage C, covered only by named perils. The windstorm peril covers rain entering a building only through an opening the wind or hail has made in the roof or a wall, so the chair is not covered. The same storm gives opposite answers for the building and its contents.

Which Exclusion, If Any? Decide whether the HO-3 covers each loss: (a) an earthquake ruptures a gas line and the house burns; (b) heavy rain makes the city sewer back up into the basement; (c) a utility's substation fails during a heat wave and the food in the freezer spoils; (d) one spouse sets fire to the house in a divorce dispute; (e) the insured's motorboat is stolen from a marina.

Answer

(a) Covered: Earthquake is excluded, but direct loss by fire resulting from earth movement is covered.

(b) Excluded: Water that backs up through sewers or drains is part of the water exclusion. A water back-up endorsement adds the coverage back.

(c) Excluded: The power failure took place off the residence premises, and no covered peril followed on the premises.

(d) Excluded for both spouses: Intentional loss bars every insured, including the spouse who did not set the fire.

(e) Excluded: Theft of watercraft off the residence premises is not part of the theft peril.

How it appears on the exam

DISC-IA: Section 5.4 analyzes the HO-3's Section I perils insured against and exclusions. Questions describe a cause of loss and the property damaged, and ask whether the open perils coverage on the buildings or the named perils on the contents responds, and whether an exclusion removes it.

Two-part answers: The stem often damages both the building and the contents in one event, because the two bases can give different answers.

Exam traps

Open perils is not all risks: Coverage A and B are broad, but the exclusions inside the peril (wear and tear, freezing, vacancy vandalism, mold, settling) and the general exclusions still apply.

The contents need a named peril: For Coverage C ask which of the sixteen perils caused the loss. No named peril, no coverage, whatever the building's answer.

Ensuing fire is covered: Earthquake and flood are excluded, but a fire, explosion or theft that they cause is covered.

Sewer back-up is water, not plumbing: Water entering through sewers or drains or from a sump is excluded; water escaping from the house's own plumbing is covered.

The 60-day vacancy rule: Vandalism to the buildings is excluded after more than 60 consecutive days of vacancy; a dwelling under construction isn't vacant.