There are six parts to a homeowner’s policy and they are as follows: (A) Dwelling; (B) Other Structures; (C) Personal Property; (D) Loss of Use; (E) Personal Liability; and (F) Medical Payments to Others. This article will concentrate on parts, A, B, C and D. In a separate article I will discuss the need to pay attention to your homeowner’s medical and liability section. In addition I will discuss the need for a personal umbrella policy. It is this author’s recommendation that you spend time with your individual insurance producer going over each of the parts to be sure the home insurance policy is not a cookie cutter policy, but rather a custom-made home insurance policy designed for your needs. This is best accomplished through meeting with an insurance producer in person, rather than over the internet or through the use of a 1-800 number.

        The Dwelling Coverage Part A in your home insurance policy (HO-3) covers the dwelling, the structures attached to the dwelling (garage, deck, carports etc.), but it excludes the land. In addition materials and supplies on or next to the dwelling that is used to alter, or repair the dwelling is covered under this part, for all the perils except theft. Insurance Producers are not professional property appraisers, and if you want an accurate value of your home’s value you should invest the money in periodically obtaining a professional appraisal. The best form to place on your homeowner’s policy is guaranteed replacement cost (not just the term replacement cost, as there is a huge difference in coverage). As a tip be sure to ask your insurance producer about the limitation on guaranteed replacement cost (Is it limited to 125%, 150% or unlimited).

       The Other Structures Part B in your homeowners (HO-3) insurance policy covers detached structures, and it excludes land. Part B has a value of 10% of Part A. This means if you have a home valued at $200,000 other structures will have a limit of $20,000 unless you endorse more coverage on the policy.  It is extremely important to note that any business use of other structures excludes coverage for that structure. Often times if an individual has a small business and an unattached structure the individual will do at least some work for the business from the structure. When this occurs the homeowners coverage becomes void on the unattached structure at the time of a claim. The remedy is to add that structure and the contents to commercial policy. In addition the homeowners policy voids coverage if the other unattached structure is rented for any other purpose than a private garage. Sometimes when an individual has an unattached structure the person rents it out to another individual when this happens the other structure is void. The remedy is to purchase a dwelling fire policy and purchase liability or have the insurance extend the liability coverage from your homeowners policy. It is also important to place in your contract with the tenant a requirement for them to carry a renters policy (HO-4), and name you on as an additional insured. The contract should specify the need to provide you a certificate of insurance naming you on as an additional insured. When designing contracts it is always best to seek the advice of an attorney.   

Personal Property is Part C and under the Insurance Organizations Form (ISO) HO-3 personal property is covered for 50% of coverage A (The value of your home. If you have a $200,000 home you have up to $100,000 coverage for your personal property). If you have property usually located at another residence (perhaps a cabin) your policy is limited to 10% of coverage A with a maximum of $1,000.  If this is your situation you will want to purchase more coverage. Many insurance companies have 70% for coverage C, so it is wise to check to be sure you are with a company where you are obtaining the most coverage. Always insist on having replacement cost on your contents (personal belongings).

There are limitations in your homeowners policy that are located at your home and you need to pay attention to them. Where it is appropriate make adjustments with your insurance producer to have proper coverage before there is a claim. The limitations and suggestions are as follows:

(1).    $200 on money, bank notes, bullion, gold, other than goldware, silver, other than silverware,     platinum, coins and metals. Talk to your bank and consider a safety deposit box. 

 (2).  $1,000 on securities, accounts, deeds, letters of credit, notes other than bank notes, evidence of debt, stamps, manuscripts, personal records, and passport tickets. Regardless of the medium on which the material exists. Talk to your bank and consider a safety deposit box.   

(3).  $1,000 for any watercraft including trailers, outboard engines or motors, and furnishings. Do not look for adequate insurance coverage under your home insurance policy. See your insurance producer about a boat insurance policy.

(4)   $1,000 for non-watercraft trailers. Talk to your insurance producer about adding  the  trailer on to the auto insurance policy.

(5). $1,000 for loss of theft of jewelry, furs, watches, semi-precious, and precious stones. Do  yourself a huge favor and schedule these items of value on a personal articles floater  (inland marine policy).

(6). $2,000 for loss of theft of firearms. If you have firearms schedule them on a personal articles floater (inland marine policy).  

(7). $2,500 for loss by theft of silver-plated ware, silverware, gold-plated ware goldware, and pewterware. Once again if you have these items schedule them on personal          articles floater (inland marine policy).

(8). $2,500 for any business property located on the premises and $250 for business          property off premises. If you have any business property the property belongs  on a business insurance policy.

(9). $1000 for loss to electronic apparatus while in or upon a motor vehicle or other land         vehicle. Electrical apparatus also include: accessories or antennas, wires, discs, and other media. If you have more than a $1,000 talks to your insurance producer about scheduling the items on a personal articles floater (inland marine) or your auto insurance policy.

(10)$1,000 if the electrical apparatus is not in or on a motor vehicle, but has the capability to         operate by power from the electrical system or other sources of power if it is away from the described premises (your home) and is used for any business purpose. .     

(11). Although there is no set limit on fine arts, (if fine arts are scheduled it will be written on an agreed amount basis, all other schedules are treated the same way as Coverage C), musical instruments, golfer’s equipment, and antiques. You should talk to your insurance producer about scheduling these items for the following reasons: (1) You obtain open peril coverage which is much broader coverage than named perils which comes with your HO-3  homeowners insurance policy; (2) you obtain additional property coverage and for items with limitations you can extend the limits; (3) you are not subject to a deductible;  (4) and you establish the existence of an item. In addition with fine arts you can schedule the items  and have an agreed amount, which establishes value ahead of a potential claim.  I strongly recommend that if you have any of these items you talk to your insurance producer regarding scheduling them on a personal articles floater (inland marine policy).  

Every insurance policy has exclusions, and homeowners HO-3 is no exception. Some of the exclusions are as follows:

(1).  Articles specifically insured and separately described. An example would be if you decided to use an inland marine floater for your jewelry. You could not claim your jewelry loss under this policy and the inland marine floater.   

(2).  Birds, fish, rodents, insects and animals (owned or kept by you).

(3).  Motor vehicles

(4).  Aircraft and aircraft parts

(5).  Property of roomers and boarders unless the roomers are related. Your tenant’s need to    purchase a renters policy (HO-6).

(6).  Property that is located in an apartment that is regularly rented or regularly rented to others by you (insured).

(7).   Property rented to others off your described premises (your home)

(8).   Business data

(9).   Neglect. If your residence is unoccupied and you fail to drain the water pipes or maintain heat. Then there will be no coverage for freezing of plumbing, heating or air conditioning.

(10). Power Failure. You may want to talk to your insurance producer about the          endorsement Refrigerated Property Coverage.

(11). Nuclear Hazards,

(12).  Intentional Loss 

(13).   Ordinance or law. This refers to the enforcement of any ordinance or law regulating the construction, repair or demolition of your home or another structure. An example is after a fire when you are rebuilding codes may have changed since you purchased the home. Perhaps the city is saying all new construction must have a sprinkler system in the home.  An HO-3 policy covers up to 10% of coverage A (If your residence has a value of  $200,000 ordinance or law will have a limit of $20,000).  Your insurance producer and you should  have a conversation regarding ordinance or law coverage.   

(14).   Earth movement. This is referring to earthquake, land shocks, waves or tremors before         during or after a volcanic eruption, landslide, mine subsidence, mudflow, earth sinking, rising or shifting, unless the loss is caused by a fire, explosion, or breakage of glass or afety glass which is part of a building, storm door or storm window. If you would like there to be coverage for these perils you need to talk to your insurance producer about  obtaining deference in condition policy.

(15).   Collapse except on a very limited basis

(16).   Freezing and thawing and the weight of water or ice on fences, patios, swimming pools,          foundations, retaining walls, piers or docks,  

(17).  If your residence is vacant for 30 or more days there is no vandalism or malicious            mischief coverage in your homeowners insurance policy.

(18).  Smoke from industrial operations and agricultural smudging

(19).  Mechanical Breakdown, rust and other corrosion, mold, rot, wear and tear, inherent vice (an example would be metal that is exposed to water

(20).  Pollution through seepage, dispersal, or escape of any liquid gaseous, thermal or solid.          The exception is if the pollutant is caused by a peril insured against such as fire. 

(21).  Settling, cracking or bulging of the expansion of pavements, foundations, floors, walls,           and patios. 

(22).  Water damage including flood, surface water, waves, tidal water, and overflow of a body           of water, and spray whether or not it is driven by the wind, water that back up through           sewers, drains, or which overflows from a sump, water below the surface of the ground           including water which exerts pressure on or seeps or leaks through a building, driveway, sidewalk, foundation, swimming pool or other structure. Your insurance producer and you should talk about the coverage provided if you endorse on to your policy a flood policy, perhaps a company specific endorsement, and a Water Back Up and Sump Overflow Endorsement.

23.    War

24.    Faulty, defective or inadequate coverage for zoning, planning, development of surveying sites, workmanship, design, specification, construction, remodeling, renovation, grading, compaction, materials used in the construction, and maintenance.

The fourth and final Coverage Part this article will address is Coverage D-Loss of Use. This section addresses the needed additional expenses to maintain normal living expenses after a covered loss. Part D has a 20% limit of Coverage A. (If your residence is valued at $200,000 there is $40,000 available for loss of use). If you are renting to a tenant at the described premises where you reside your HO-3 policy will provide fair rental value under this section. In addition this provision of the policy affords you up to a period of two weeks if a civil authority prohibits you from use of your residence as a result of neighboring premises having a peril insured against. An example would be a neighbor had a fire and you were not allowed access to your home as a result of their fire.

Additional coverages that your HO-3 affords you are as follows:

(1).   Debris removal from a covered peril the limit is included in Coverage A and the insurance       company will increase up to an additional 5% if the limit is exceeded in coverage A.

(2).   Reasonable repairs after a covered loss that are necessary to continue to protect the       Property (boarding up the home after a fire to prevent trespassers from entering the burned structure).

(3).  Trees, Shrubs and other Plants damaged from fire or lightning, explosion, riot, aircraft,       vehicles not owned by you, or a resident of your premises, vandalism or malicious mischief. Please note wind is not included in this coverage. If this is a concern to you talk to your insurance producer to see if one of his/her insurance companies provides an endorsement for wind. This coverage is limited to 5% of the dwelling, with a limit per tree, shrub, plant, or lawn of $500.

(4).   For 30 days you have “all risk” coverage if something happens to property you are trying        to protect after a covered loss.

(5).   $500 limit for the your legal obligation to pay for theft of your credit card(s), an        unauthorized fund transfer, forgery, and acceptance in good faith of counterfeit money.  No deductible will apply.

(6).   $1,000 loss assessment charged by a corporation, or association of property owners as a        result of a direct loss to the property for which you are legally obligated to pay. If you       have exposure in this area you will want to speak with your insurance producer regarding the  need to increase this coverage.  

(7).   Collapse coverage. As discussed earlier this is limited coverage and does not include         settling, cracking, shrinking, bulging, or expansion.     

(8).   Glass coverage for breakage of building glass, storm door glass window glass, and safety          glazing material. If your residence has been vacant for more than 30 days           before the loss there is no glass coverage in your HO-3 Homeowners Policy.   

(9).  A limited amount of coverage in the amount of up to $2,500 is given back to you if you          are a landlord for appliances, carpeting and other household furnishings on a named           peril  basis. This means there is no theft coverage. If you have rental property it is           my strong advice that you talk to an insurance producer and insure the separate structure on a dwelling fire policy, include the structure, loss of use, and contents (personal property), with high liability limits. In addition be sure to require the tenants to have renters policy (HO-6) naming you on as an additional insured.  

 If you have any questions regarding issues  discussed in this article, and/or we can help you in any way  please e-mail dan@idealins.com  or call Dan Mitchell CIC 623-933-8263 (my partner and brother) in the Ideal Insurance Agency Office  www.idealins.com located at 14239 W. Bell Road Surprise Arizona 85374 or myself David Mitchell CIC, MBA, MA.HR, SPHR dave@idealins.com  623-889-7311 located at   Agency 7121 W. Bell Road #10-L Glendale Arizona 85308 Ideal Insurance Agency services Glendale, Surprise, Peoria, Sun City, Phoenix, Litchfield, Goodyear, Anthem, Black Canyon City, Tempe, Mesa, Gilbert, Queen Creek, Prescott, Prescott Valley, and all of Arizona.  

Employees using their own auto on company business

Many employers do not understand the risk to which they expose their company by allowing employees to run errands or do other company business while using their own auto

Often the company can be held liable through vicarious liability, if the employee is involved in at fault accident while driving his or her auto on company business. The way a company often finds out is after the employee has been deposed, by counsel for the plaintiffs, and was asked if he/she was on company’s time at the time  when the accident  occurred. Once the plaintiff’s attorney discovers  the employee was on company time at the time of the accident, the employer is served with a summons. The company then starts the mad scramble to figure out if there was any insurance to cover this loss.

The question then becomes: is the employer covered under the employee’s policy, and if so, for how much? The answer to the first part of the question is maybe. If the employee has auto insurance liability coverage for the auto the employer has coverage along with the employee, and will have the opportunity to share those auto liability  limits. The exclusion on a personal auto insurance  policy are delivery, livery (vehicles for hire), or if the employer is engaged in the business of selling, repairing, servicing, storing, or parking autos. An example where there would not be coverage under the employee’s policy is pizza delivery; but some personal auto insurance  policies exclude any business use for the auto.

The next question is: with the employee’s auto insurance  policy and whether or not it is in effect. There is a strong possibility that the employer does not know whether the employee had auto insurance on his/her personal auto at the time of the accident. The next question is: how much coverage does the  auto insurance policy have? It is possible, especially if the employee is young and/or without a lot of personal assets, that he/she, if  auto liability is on the personal auto policy is carrying only the minimum state requirements. In several states the minimum liability is $15,000 per person, $30,000 per accident, and  $10,000 property damage. Since the employee’s auto insurance is primary, once the employee’s auto liability limits are exhausted the employer may be the one held liable for the excess (the amount of the award less the liability limits on the personal auto policy). Unless the proper steps have been taken the employer will find there is no insurance coverage under the company’s policy.

Four Approaches

As a risk management technique what should an employer do? There are four approaches we will talk about.

Approach number one is avoidance. Never allow an employee under any circumstance to use their own auto on company business, even when employees may be traveling between meetings. This approach is probably not practical for most businesses, since most businesses, have occasions where the employees use their own auto, and  do not want to own and provide an auto for the employees.

Approach number two is have a list of designated drivers who on rare occasions will use their own auto.. The company should establish criteria regarding which employees can be designated drivers. Such criteria could require that an employee’s motor driving record be kept on file and current with the company showing the employees that are “acceptable” drivers to the company. This approach should reduce the risk of  auto liability to the company.

Approach number three is for the company to add an endorsement called  non-owned auto insurance to either the business auto insurnace  policy or general liability policy. It must be requested by the employer and added on as an endorsement.

The non-owned endorsement is an excess policy. The  non-owned auto insurance endorsement would be triggered after the employee’s policy limits are exhausted, and would provide “excess”  auto liability coverage up to the limits of the endorsement, to protect the employer.  

The fourth approach is a combination of approach number two and number three. This approach provides the best protection for the employer.

Take a moment and talk to your company insurance professional. 

If you have any questions regarding issues discussed in this article and/or we can help you in any way please e-mail dan@idealins.com or call Dan Mitchell CIC 623-933-8263 (my partner and brother) in the Ideal Insurance Agency Office Surprise www.idealins.com located at 14239 W. Bell Road Surprise Arizona 85374 or myself David Mitchell CIC, MBA, MA.HR, SPHR dave@idealins.com 623-889-7311  in the Ideal Insurance Agency Glendale located at 7121 W. Bell Road #10-L Glendale Arizona 85308. Ideal Insurance Agency services Glendale, Surprise, Peoria, Sun City, Phoenix, Litchfield Park, Goodyear, Anthem, Black Canyon City, Tempe, Mesa, Gilbert, Queen Creek, Prescott, Prescott Valley, Flagstaff, Tucsan and all of Arizona.

Copyright HR & Employment Law Compliance Guide for Arizona Employers prepared by HRHELP Rev. 2010; All Rights Reserved