Section 1 scope in HO-2 includes eight exclusions. Any of the eight exclusions
excludes the insurer's responsibility for insured damage.
Homeowner's insurance policies can say:
We don't cover any of the following damages incurred directly or indirectly.
Such loss is omitted regardless of any other cause or occurrence, leading
to the failure in any series.
Ordinance of law
Means enforcement of any ordinance or law governing the construction, repair,
or demolition of a building or other structure, as stated in this regulation.
Meaning earthquake including earth shock waves or tremors before, during
or after a volcanic eruption; landslide; mudflow; falling, rising or moving
earth; or direct loss from:
- Glass breakage or protection glazing part of a house, storm door or storm window
Harm from water.
- Flood, surface water, waves, tidal water, overflow or spray from all of
these, whether or not powered by wind;
- Water backing into sewers or drains;
- Water below ground level, including water exerting pressure or through
a house, pavement, driveway, base, swimming pool, or some other structure;
- Direct fire, explosion, or theft from water damage is covered.
Meaning power failure or other utility services if the failure happens
off the But if a Peril Insured Against happens, we can only compensate
for the resulting loss.
The insured's neglect to use all appropriate means to save and protect
property after a loss.
Including undeclared war, civil war, uprising, revolt, revolution, military
or military personnel warlike act, destruction or capture or use for military
purposes, and any result thereof. Discharge of a nuclear weapon is considered
a militant action, even if unintended.
Meaning any nuclear reaction, radiation, or radioactive contamination.
It includes whether controlled or uncontrolled and, however, caused or
Any loss resulting from any act performed by or in the insured's direction
where they intended to cause failure.
The Basic Fire Policy (SFP) derived several HO-2 conditions.
The loss settlement clause provides different ways to assess the amount
of payment in case of loss to the insured.
Covered property damages are settled:
Buildings under coverage A or B without deduction for depreciation, subject
to the following:
If at a time during coverage, the cost of loss in this policy on the damaged
building is eighty percent or more of the total placement cost of the
building, immediately before the loss, we will pay the cost of fixing
or replacing it after deductible and without depreciation deduction, but
not more than the following amounts:
- The building's liability cap under this policy;
- Replacement costs of that section of the building destroyed similar construction
and usage on the same premises;
- The sum needed to fix or rebuild the damaged house.
If at the time of loss, the amount of insurance in this policy on the damaged
building is less than eighty percent of the building's full repair
cost immediately before the loss, we will pay the greater of the following
sums, but not more than the maximum of the building's liability under
- The actual cash value of the damaged building part; or
- The proportion of repair or replacement costs after application
Deductible and without deduction for depreciation, the portion of the building
that the total amount of insurance under this policy deticated to the
damaged building pays eighty percent of the building's repair cost.
Replacement costs and value-added insurance
HO-2 's loss settlement clause includes a penalty clause that applies
if the insured purchased less than 80% of replacement costs. The HO penalty
clause parallels that typically found in commercial property insurance
policies. The object of both the coinsurance clause and the HO loss settlement
clause is to make the insured unattractive. Both provisions allow for
the insured to pay the penalty depending on the insurance number.
Many property plans include a provision requiring the insured to buy minimum
insurance if the insured requires maximum coverage on all damages. If
the insured buys less than the minimum, only partial damage recovery can
occur. The insurer's minimum insurance typically needs to be specified
as a percentage of the insured property's replacement cost.
To determine if the insured fulfilled the dwelling coinsurance condition,
-insurers use the following formula: insurance amount purchased amounts
X of = insurance 80 percent of replacement cost loss proceeds.
If the first term is less than 1, the insured will bear part of the damage.
If the fraction is equal to or greater than one, the insurer will pay
the entire amount of the loss, limited to the face amount of insurance
Reasons for the reimbursement
What triggers the coinsurance requirement? Holding insurance rates equal exists.
If property owners, knowing most risks, are partial, bought insurance equal
to only 50 percent of the insured property's value, they may assume
the most considerable portion of the liability had been transferred. They'd
have an advantageous deal without the coinsurance penalty. The coinsurance
provision of property insurance plans prohibits the insured from using
the insurers' average rate structure. If someone buys insurance equal
to 50% of the property's value while the insurer needs 80% coverage,
the insured will obtain an only partial recovery for a loss.
The HO has provisions protecting creditors from making insured property
loans. This defense is contained in mortgage proof of debt. When a property
loan is made, it's the protection arrangement. A mortgage gives the
lender (mortgagee) legal interest in mortgaged land. If the borrower (mortgage)
defaults on the loan agreement, the mortgage will foreclose the mortgage
and sell the property to the debt. The mortgage both has an insurable
interest in the land.
Mortgagee requires trustee.
If a mortgage is named in this agreement, you and the mortgagee will collect
any loss payable under Coverage A or B as interest occurs. If more than
one mortgagee is called, the payment order will be the same as the mortgage order.
If we reject your application, it won't apply to a legitimate mortgage
application if the mortgagee:
- Please notify us of any change in ownership, occupancy, or significant
risk known to the mortgagee
- Pay any premium due under this agreement if you fail to pay the premium
- Submits a signed, sworn declaration of loss within 60 days of obtaining
notification of your failure by us
Government conditions for assessment, suit against us, and a payment applies
to the mortgagee. If we cancel or not renew the policy, the mortgagee
will be informed at least IO days before the date of termination or non-renewal.
If we pay the mortgagee for any loss, refuse your payment:
- We are subrogated to all mortgage rights given under property mortgage.
- We will pay the entire principal on the mortgage, plus any accrued interest,
at our option. We will obtain full assignment and transfer of the mortgage
and all securities held as collateral to the mortgage debt.
Subrogation would not affect the mortgagee's right to recover the mortgagee's
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