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Chapter 9

Homeowners Insurance: Section II Coverages

Overview

This chapter examines Section II of the ISO Homeowners insurance contracts. Section I of the
Homeowners 3 policy was examined in the previous chapter. While there are variations in the Section I
coverages for the various forms, Section II is identical in each form. Section II provides personal liability
insurance that will respond to liability claims. Section II also includes medical payments to others
coverage. As both of these coverages are provided on an all-risk basis, the exclusions applicable to these
coverages are examined. Some additional coverages provided under Section II are discussed, as well as
some endorsements that can be added to your homeowners policy to broaden the coverage. The chapter
closes with some important suggestions to follow when shopping for homeowners insurance. The
appendix to Chapter 9 provides tips on how to save money when buying homeowners insurance.

Learning Objectives

After studying this chapter, you should be able to:


Explain the personal liability coverage found in Section II of the homeowners policy.
Explain the medical payments to others coverage found in Section II of the homeowners policy.
Identify the major exclusions that apply to the Section II coverages in the homeowners policy.
Explain the following endorsements that can be added to a homeowners policy: inflation guard
endorsement and personal property replacement cost endorsement.
Explain the suggestions that consumers should follow when shopping for a homeowners policy.
Define the following:
Occurrence
Claim expenses
Personal injury
Contractual liability
Personal liability
Damage to the property of others
Personal property replacement cost loss
Earthquake endorsement
settlement endorsement
First-aid expenses
Personal umbrella policy
Home business insurance coverage
Scheduled personal property endorsement (with
endorsement
agreed value loss settlement)
Identity theft endorsement
Watercraft endorsement
Inflation guard endorsement
Insurance score
Medical payments to others

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Outline
I. Personal Liability Insurance
A. Insuring Agreements
1. Coverage E: Personal Liability
2. Coverage F: Medical Payments to Others

II. Section II Exclusions


A. Exclusions That Apply to Both Coverage E and Coverage F
B. Exclusions That Apply Only to Coverage E
C. Exclusions That Apply Only to Coverage F
III. Section II Additional Coverages
A. Claim Expenses
B. First-Aid Expenses
C. Damage to Property of Others
D. Loss Assessment
IV. Endorsements to a Homeowners Policy
A. Inflation Guard Endorsement
B. Earthquake Endorsement
C. Personal Property Replacement Cost Loss Settlement Endorsement
D. Scheduled Personal Property Endorsement (with Agreed Value Loss Settlement)
E. Personal Injury Endorsement
F.

Home Business Insurance Coverage Endorsement

G. Identity Theft Endorsement


V. Shopping for Homeowners Insurance
A. Cost of Homeowners Insurance
B. How to Save Money on a Homeowners Policy (Appendix)

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Short Answer Questions

1. What two coverages are provided under Section II of the homeowners policy?

2. Is the limit of liability under Coverage E an aggregate limit or a per-occurrence limit? What is an
occurrence?

3. How do the two coverages provided under Section II of the homeowners policy differ with regard to
who is covered and whether liability must be established for the coverage to respond?

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4. What exclusions are common to both Coverage E and Coverage F?

5. What additional exclusions apply to Coverage E only?

6. What additional exclusions apply to Coverage F only?

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7. What additional coverages are provided under Section II of the homeowners policy?

8. What endorsements can be added to the homeowners contract to make the coverage more complete?

9. What factors determine the cost of homeowners insurance?

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10. What factors should you consider when shopping for homeowners insurance coverage?

Multiple Choice Questions

Circle the letter that corresponds to the BEST answer.


1. All of the following are excluded under Section II of the homeowners policy EXCEPT:
(a) bodily injury to others
(b) business activities
(c) motor vehicles
(d) personal injury
2. All of the following are additional coverages automatically provided under Section II of the
homeowners policy EXCEPT:
(a) first aid expenses
(b) inflation protection
(c) damage to property of others
(d) claim expenses
3. Which statement(s) is(are) true with regard to Section II of the homeowners policy?
I. It provides coverage for damage to the dwelling, other structures, and personal property.
II. It provides personal liability insurance and medical payments to others coverage.
(a)
(b)
(c)
(d)

I only
II only
both I and II
neither I nor II

4. Dr. Mary Chang is a dentist. She misread a patients X-ray and extracted the wrong tooth. The patient
has filed a lawsuit against Dr. Chang, alleging malpractice. This claim will not be covered under the
homeowners policy because:
(a) It involves personal injury, not bodily injury.
(b) Intentional injury is excluded.
(c) Liability resulting from professional services is excluded.
(d) The act was an occurrence, not an accident.

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5. Gilda does not want depreciation taken into consideration if her personal property sustains a loss.
Which of the following endorsements should Gilda consider adding to her Homeowners 3 policy?
(a) personal property replacement cost endorsement
(b) scheduled personal property coverage
(c) personal injury endorsement
(d) inflation guard endorsement
6. Which statement is true with regard to Section II of the homeowners policy?
I. Before the insurer will pay a personal liability insurance claim, an insured must be legally liable.
II. Before the insurer will cover medical payments to others, an insured must be legally liable for
the injury.
(a)
(b)
(c)
(d)

I only
II only
both I and II
neither I nor II

7. All of the following are endorsements that can be added to the homeowners policy EXCEPT:
(a) home business insurance coverage endorsement
(b) bodily injury liability endorsement
(c) earthquake endorsement
(d) watercraft endorsement
8. Which statement(s) is(are) true with regard to Coverage EPersonal Liability?
I. In addition to liability coverage, the insurer will cover legal defense costs.
II. The coverage will only respond to accidents, not occurrences.
(a)
(b)
(c)
(d)

I only
II only
both I and II
neither I nor II

9. Which statement is true with regard to shopping for homeowners insurance?


(a) Selecting a lower deductible will lower your premium.
(b) There is no cost variation among homeowners policies.
(c) It may be necessary to use a scheduled personal property endorsement to provide coverage for
some personal property.
(d) Although the actual cash value coverage on personal property is limited, replacement cost
coverage is not available.
10. All of the following statements regarding the cost of homeowners insurance are true EXCEPT:
(a) Insurers charge less to insure newer homes than to insure older homes.
(b) Wooden homes cost more to insure than do brick homes.
(c) The HO-3 policy is less expensive than the HO-2 policy.
(d) If a higher deductible is selected, the premium will be lower.

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True/False

Circle the T if the statement is true, the F if the statement is false. Explain to yourself why a statement
is false.
T

1. Personal injury is covered under Section II of an unendorsed homeowners policy.

2. Intentional injury is excluded from coverage under Section II of the homeowners policy.

3. Medical expense coverage applies to resident employees injured on the premises.

4. All watercraft are explicitly excluded from coverage under Section II of the homeowners
policy.

5. Section II of the homeowners policy applies to accidents only. Gradual damage that occurs
over time is not covered.

6. In addition to providing personal liability protection under Coverage E, the insurer also
provides for the cost of a legal defense even if the claim is groundless.

7. The age, construction, fire protection class, and location of your home will affect the
premium you pay for homeowners insurance.

8. Damage to personal property owned by the insured is covered under Section II of the
homeowners policy.

9. Legal liability of an insured must be established before the medical payments to others
coverage will apply.

F 10. Your credit history may have an influence upon an insurers willingness to sell you a
homeowners insurance policy.

Case Applications

Case 1
Last Friday was a horrible day for Dr. Brian and Lynn Green. A patient filed a medical malpractice claim
against Dr. Green. While playing golf, Lynn sliced a shot and hit another golfer. The normally docile family
dog bit their next-door neighbor. Dr. Green was charged with defamation of character by another physician.
The other doctor claims Dr. Green slandered her at an American Medical Association meeting. The maid,
who lives with the Greens, received a severe laceration when a glass she was washing shattered. Will
Section II of the HO-3 policy cover these claims?

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Case 2
Penny Franklin insured her home with an unendorsed Homeowners 3 policy. Penny taught kindergarten and
first grade up until her son was born last year. Penny misses the classroom and needs to earn some money.
However, she would like to spend time with her baby. She is considering opening a pre-pre-school in
her home. Parents will leave their children in the morning before they go to work, and in addition to normal
day-care services, Penny will prepare the children for kindergarten. What advice would you offer Penny
with regard to her homeowners insurance and this proposed child care operation?

Solutions to Chapter 9

Short Answer Questions


1. Section II of the Homeowners 3 policy provides two coverages. Coverage E is personal liability
insurance. This coverage is provided with a $100,000 per occurrence limit. The insurer also provides
coverage for legal defense costs, with the cost of the legal defense not counted against the limit of
liability. Coverage F is medical payments to others coverage. Up to $1000 per person is provided.
2. The limit of liability under Coverage E is a per-occurrence limit. Several occurrences could happen
during the year, and the full limit of liability is available to respond to each separate occurrence. While
accidents are sudden events, an occurrence may take place over time. The homeowners policy
defines occurrence to include accidental losses as well as losses that happen over a period of time.
3. Personal liability coverage protects the named insured, spouse, family members residing at home, and
some other miscellaneous persons. The medical payments coverage, in contrast, does not apply to the
homeowner or regular residents of the home, except resident employees. The words to others are
added to the medical payments coveragemedical payments to others. The liability coverage is
based upon establishing legal liability. The medical payments coverage is not based on legal liability.
4. Several exclusions apply both to personal liability (Coverage E) and medical payments to others
(Coverage F). These common exclusions are: motor vehicle liability, liability arising from use of
certain watercraft, aircraft and hovercraft liability, expected or intentional injury, business activities,
professional services, uninsured locations, war, communicable disease, sexual molestation/abuse and
corporal punishment, and controlled substances.

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5. Additional exclusions that apply to personal liability (Coverage E) include: contractual liability,
property owned by the insured, property in the care of the insured, workers compensation, nuclear
energy, and bodily injury to an insured.
6. The final set of exclusions applies to medical payments to others (Coverage F). These exclusions are:
injury to a resident employee off an insured location, workers compensation, nuclear energy, and
persons regularly residing at the insured location.
7. Several additional coverages are provided under Section II of the homeowners policy. The additional
coverages are claim expenses, first-aid expenses, coverage for damage to the property of others, and
certain loss assessment charges.
8. A number of endorsements can be added to the homeowners contract to broaden the coverage. These
endorsements include: an inflation guard endorsement, an earthquake endorsement, a personal
property replacement cost endorsement, a scheduled personal property endorsement, a personal injury
endorsement, an endorsement covering certain watercraft and recreational vehicles, and a home
business insurance coverage endorsement.
9. A number of factors determine the cost of homeowners insurance. Major rating and underwriting
factors include: construction, location, fire-protection class, construction costs, age of the home,
type of policy purchased, deductible level, insurance score, and CLUE report.
10. Some guidelines when shopping for homeowners insurance include: purchase an adequate amount of
insurance, add necessary endorsements, shop around for a policy, consider a higher deductible, take
advantage of discounts, dont ignore disaster perils, consider purchasing a personal umbrella policy,
and improve your credit rating.

Multiple Choice Questions


1. (a) Bodily injury to others is not excludedit is covered. Personal injury and the other listed choices
are excluded under Section II of the homeowners policy.
2. (b) Inflation protection is not provided automatically. The insured must periodically adjust the amount
of coverage in force or purchase an inflation-guard endorsement to have this protection.
3. (b) Damage to the dwelling, other structures, and personal property of the insured are provided under
Section I of the homeowners policy. Section II provides personal liability and medical payments
to others coverage.
4. (c) Liability arising out of professional services is excluded under Section II of the homeowners
policy.
5. (a) The personal property coverage in a Homeowners 3 policy is written on an actual cash value basis.
Should a loss occur, depreciation will be considered when determining the loss settlement. A
personal property replacement cost endorsement changes the basis of recovery to replacement
cost.

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6. (a) Coverage E, Personal Liability, is based on establishing legal liability. Medical Payments to
Others (Coverage F) is paid regardless of legal liability.
7. (b) There is no need to add a bodily injury liability endorsement as this coverage is already provided
under the policy. The other endorsements listed may be added by the insured.
8. (a) Only the first statement is true. As the insurer will pay the claim if you are legally liable, the
insurer has an incentive to make sure that you have competent legal representation. The coverage
is written to insure occurrences, not accidents. Occurrence coverage is broader, insuring
accidents as well as damage that happens gradually over time.
9. (c) Certain property, such as furs, silverware, and collectibles, is subject to limits under the
homeowners policy. To overcome these internal policy limits, a scheduled personal property
endorsement can be added to the homeowners policy.
10. (c) The HO-3 policy is more expensive than the HO-2 policy. The HO-3 provides broader coverage,
and insurers charge accordingly.

True/False
1. F While bodily injury and property damage liability are covered under Section II, personal injury is
excluded. This coverage can be added through an endorsement. Personal injury is also covered by
some personal umbrella liability policies.
2. T
3. T
4. F Although there is a watercraft exclusion, only certain watercraft are excluded. Excluded watercraft
are mainly those above certain length and horsepower limits.
5. F Section II of the homeowners policy is written on an occurrence basis. Occurrence coverage
protects against accidents and also damage that occurs gradually over time.
6. T
7. T
8. F Coverage for damage to personal property owned by the insured is covered under Coverage C of
Section I of the homeowners policy. It is excluded under Section II.
9. F The medical payments to others coverage under Section II does not require establishing legal
liability.
10. T

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Case Applications
Case 1
The first claim is a medical malpractice claim against Dr. Green. Professional liability is excluded under
Section II, so this claim is not covered. The coverage would respond to the golfer injured by the misguided
golf shot Lynn Green hit. A claim brought by the next-door neighbor as a result of the dog bite would be
covered. As defamation and slander are considered personal injuries, Section II would not respond unless
the coverage was added by endorsement. The maids medical expenses would be eligible for coverage.
While the medical expense coverage applies to others, an exception is made for a resident employee
who was injured at the insureds home.
Case 2
Before Penny starts this business in her home, her homeowners coverage must be modified. There is a
general business activity exclusion in Section II that makes it clear that liability resulting from businesses
activities is not covered. She must endorse her policy to have coverage for day-care related liability claims
or purchase a separate policy to have the necessary coverage.

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