Homework - Chapter 13: Multirisk Management Contracts: Homeowners

1. Bill has a homeowners policy with form HO-3. His home has a replacement value of $80,000, and the contents are worth $45,000 at replacement cost or $35,000 at actual cash value. He has a detached greenhouse with heat and humidity control that houses his prized collection of exotic flowers. The flowers are valued at $11,000, and the greenhouse would cost $7,500 to replace at todays prices. His policy has the following coverages: Dwellings $60,000 Unscheduled personal property $30,000 Personal liability, per occurrence $25,000 A property coverage deductible of $250 per occurrence applies. Analyze each of the following situations in light of the above information. Determine all applicable coverage(s) and limit(s), and explain all factors that might affect the coverage provided by the policy. a. A windstorm causes $20,000 in repair cost damages to the house, and subsequent wind-blown rain causes damage to the contents of the house$18,000 in replacement cost or $11,000 at actual cash value. The greenhouse is a total loss, as are the exotic plants. Debris removal of the greenhouse to satisfy the citys health laws costs $350, and further debris removal to clear the way for repairs costs another $280. Two maple trees valued at $600 each are blown down, and their removal costs another $400. Bill must move his family to a nearby rental home for two months while repairs are made to the house. Rental costs are $600 per month, utilities at the rental house are $150 more per month, and the mortgage payments of $550 per month continue to be payable. It costs Bill another $80 per month to commute to work and to drive his children to school. The telephone company charges him $50 to change his telephone to the rental unit and back to his home again.

Answer: Coverage BOther Structures is ___ percent of Coverage A, which is ___________

Coverage DLoss of Use is ___ percent of the limit for Coverage A, which is _________

Now, determine whether Coverages A and B losses will be paid on a replacement cost or actual cash value basis.

Coverage A Dwelling

Replacement cost = _________________

Insured amount = ________________

Replacement Cost or Actual Cash Value? Circle Correct Answer

How much? ____________________

Coverage B Other Structures

The greenhouse

Replacement cost =__________________

Insured amount = __________________

Replacement Cost or Actual Cash Value? Circle Correct Answer

How much? ____________________

Coverage C Personal Property Coverage is for actual cash value, so a maximum of $30,000 will be paid for damage to contents. Windstorm is the proximate cause of the wind-blown rain damage, so it is covered/not covered?

Trees Shrubs and Other Plants:

This coverage does/does not pay for losses caused by windstorm or rain. The flowers will/wont be covered.

Debris Removal: $280

The cost of removing the two maple trees will/will not be paid because coverage did not apply to the peril (windstorm) causing damage to them. $400

Covered Additional Living Expenses are: Rental = $600 * 2 = $1,200 Utilities = $150 * 2 = $300 Commuting = $80 * 2 = $160 One-time telephone charge = $50 Total additional living expenses = _________________