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HO3 Special Form Policies Give ‘All-Risk’ Protection

By Mike Heuer

While the HO1 and HO2 homeowners insurance forms provide coverage for named perils, the HO3 “Special form” insurance plan gives protection for all risks cited except for those specifically excluded. Because it provides a comprehensive level of coverage foe single-family homes, the HO 3 special form is the most used type of homeowners insurance sold in the United States.

A typical HO3 special form policy will coverage damages or destruction caused by covered perils to the primary home, attached structures and other structures connected by utility lines, fence lines and walkways. Personal belongings also are protected up to policy limits as if liability if anyone is injured or killed on the premises. The grounds themselves are not covered, so if a tree is felled during a storm, no coverage would apply that would replace it.

While the special form provides all-risk coverage, several perils specifically are excluded, although some could be insured against with either an endorsement, which is an additional level of protection purchased for a fee, or by purchasing a separate policy.

The most common peril not protected against but many homeowners mistakenly think is covered would be external flooding. Most homeowners insurance plans offer automatic protection against water damage caused by internal flooding. But in many areas, few if any property and casualty insurers will cover damages caused by external flooding, such as a rising river, a tidal surge during a storm or similar catastrophe.

Because external flooding is highly common in many areas, such as along the Gulf Coast, many property and casualty insurers will not provide flood insurance due to the high risk of flood occurrence. Even when not located in such areas, flash flooding and similar causes can be common, and many local governments as well as the federal government has been upgrading floodplain maps and requiring flood insurance for homes and other properties located within them. The federally run National Flood Insurance Program is the most common source of flood insurance in many areas, but policies typically are limited to no more than $250,000 in coverage.

Other common exclusions include earthquakes, power failure and neglect. Endorsements can be purchased for damages caused by earthquakes and power failure, but neglect never will be covered. When a property owner is aware of a potential problem, such as a bad roof, and fails to address it in a timely manner, the insurer will declare the person to be a “moral hazard” and will not provide insurance protection for any damages or liability arising from the condition.

Yet more common exclusions are acts of war, damages caused by government actions, nuclear hazards and intentional acts, such as arson. Vacant buildings damages by freezing pipes and other systems also are not covered. Nor is damage to foundations or pavement from ice or water weight.

Also excluded is theft from a home or dwelling while under construction or damage to vacant homes or structures. Losses caused by latent defects, corrosion, industrial smoke or pollution also are not protected, nor is damage or loss caused by settling or wear and tear. Losses caused by pets, pests or other animals, weather conditions that further losses caused by excluded perils, such as and earthquake, or defective design, construction or faulty maintenance also are not covered by HO3 policies.