Property Insurance and Policy Provisions
Core property mechanics
Homeowners forms (HO-2, HO-3, HO-5, HO-8) and dwelling forms (DP-1, DP-2, DP-3) share a structure: Coverage A dwelling, B other structures, C personal property, D loss of use, E personal liability, F medical payments. Named-peril forms list covered perils; open-peril (special) forms cover everything except listed exclusions.
- Valuation: actual cash value = replacement cost minus depreciation; replacement cost pays new-for-old. On a homeowners replacement-cost policy the recoverable depreciation is typically held back until repairs are complete.
- Coinsurance is a commercial-property concept: the insured must carry a limit of at least the stated percentage (commonly 80%) of value or share the loss.
- Additional coverages typically include debris removal, trees and shrubs, reasonable repairs, and ordinance-or-law coverage (often capped as a percentage of Coverage A).
- Loss of use pays for additional living expense and fair rental value, not the mortgage payment itself.
- Mortgagee/loss payable clause protects the lender's interest; a policy cannot be cancelled for nonpayment without notice to the mortgagee.
- Appraisal is the contractual remedy for a pure valuation dispute; it does not resolve coverage questions.
- Other levers: pair-and-set, salvage, subrogation, deductible application, and concurrent causation.
Worked example
Commercial building: limit $400,000, 80% coinsurance, replacement value at loss $600,000, covered fire damage $120,000, $5,000 deductible. Required limit = 0.80 × $600,000 = $480,000. The insured carried $400,000, so the recovery factor is 400,000 ÷ 480,000 = 0.8333. Payment = $120,000 × 0.8333 = $100,000, less the $5,000 deductible = $95,000. Underinsurance cost the insured roughly $25,000.
Traps that cost marks
Applying coinsurance penalties to unendorsed homeowners policies. Forgetting the deductible. Paying replacement cost before repairs are done. Missing sublimits (ordinance or law, jewelry, cash).