Are all those shiny new toys covered?

Welcome to that most wonderful time of the year, built up to for months by the sound of carols and other traditional songs of the season that no doubt arrived at your favorite retailer in tandem with Christmas decorations and the latest plethora of "must have" gifts and gizmos.

In my area of Northern Virginia, the first sights and sounds of Christmas arrived at the local Costco the last week of September, and what an arrival it was!

Entire aisles once dedicated to wholesale club staples such as snacks by the pound, energy bars by the gross, and five-gallon drums of yellow mustard were now crowded with massive wreaths, mega-rolls of wrapping paper and motorized yard decorations. And there, looming over the blinking lights and chirpy tunes like the Statue of Liberty over New York Harbor, was the crowning glory: a 12-foot artificial, pre-wired, thousand-light Christmas tree.

Not a single shopper wandered by that wasn't momentarily transfixed by the twinkling tower. You could almost hear the myriad reactions popping up in their brains. Children were in awe — or perhaps it was the herd of blinking, nodding electrical deer and snowmen surrounding the scene. The adults also appeared to be awestruck — but whether because of the height, the multitude of lights or the price tag ($600), it was hard to discern. Or perhaps it was the herd of blinking, flashing, big-screen televisions, computers, home theater systems, iPads and other tablets surrounding the Christmas decoration store area.

As for me — well, I'm in insurance. You know what I was thinking: Homeowners', more specifically, ISO Homeowners HO 00 03 05 11, Coverage C — Personal Property, Peril #15. To wit:

15. Sudden And Accidental Damage From Artificially Generated Electrical Current

This peril does not include loss to tubes, transistors, electronic components or circuitry that are a part of appliances, fixtures, computers, home entertainment units or other types of electronic apparatus.

Judging by the retail world, the key reason for the season is adding to the accumulation of tangible assets often referred to as "personal possessions," or just "stuff."

What were once ordinary appliances are now electronic devices. (Photo: Thinkstock)

And for the last several years, the vast majority of the stuff of dreams is digital.

Our Christmas trees now come pre-wired and multi-lighted.
Dolls that once amazed by merely walking and talking now carry on full conversations with your tots, while interacting with their iPads.
Televisions that once impressed by being "big box" now vie for widest/thinnest/curviest. Plus, they are now "smart," morphing from a passive screen upon which to view the latest offerings of traditional broadcasters into key portals to the online universe of web sites, on-demand, widgets and "cord-cutting" mainstays such as Netflix, Hulu and Amazon.
Desktop computers have evolved into complete networks of modems, routers, Wi-Fi access, tablets, connected sound and video systems, and an increasing array of digital devices implanted in once "dumb" appliances such as refrigerators, garage door openers, security lights and AC/Heating systems.
"Smart home" devices are growing in number and ability. From my smartphone, I now have the options to control my lighting, security system, thermostats, garage door status, and whether my doors are locked or unlocked. Don't forget you now can access video cameras allowing you to monitor — and listen in on — babysitters, children or pets.

It's certainly a brave, new world. Now how about some brave, new insurance for all these new wonders?

For example, check out Peril #15, and note the exception wording. Every one of these new technological wonders we now fill — and operate — our homes with qualifies as "appliances, fixtures, computers, home entertainment units or other types of electronic apparatus." Brownouts, blackouts, power surges or other power problems other than natural (see "Lightning") are all more common these days (see "Power Grid" or other overloaded electrical generation issues), particularly at times of huge demand surges due to summer and winter weather extremes.

The irony is that for ISO, this is an easy fix. Substitute an HO 5 for the HO 3 (or add the appropriate Special Coverage endorsement to the HO 4 or HO 6) and voilà!— Exception eliminated. Joy to the world, indeed!

Then why in a world — in which homes are increasingly dominated with digital devices — is named perils for personal property still the common choice? Let me make it a simple formula:

People are steadily adding to their digital households, both in number and expense; PLUS

Their standard Homeowners' policy (unless Special Coverage is provided for personal property) excludes a major potential source of damage or loss to those very items; EQUALS
Potential financial disaster come claims time.

If this home theater is in a basement, would it be covered by Flood insurance? (Photo: Thinkstock)

Can you say 'E&O'?

Holiday bonus: Don't overlook the fact many of these digital wonderlands, home theaters, "man caves" or other rooms dedicated to digital toys are in basements. You might want to see just how much fun is going to arise if homeowners need to turn to their National Flood Insurance Program policy for that personal property come claim time.

Although I believe Peril No. 15's exception (which for ISO can only be overcome for unscheduled personal property by using an HO 5) is a key coverage gap, there are numerous potential trouble spots in current property forms when addressing coverage for digital devices. Permit me to mention one more: loss settlement.

This should not be a problem for recent purchases. But many of these relatively expensive devices are rendered virtually worthless within a few short months or years by ongoing advancements in technology. The device may be functioning perfectly prior to the loss, but what is the "full replacement cost" of an already behind the curve or obsolete item? And if the device in its current configuration is no longer available in the marketplace, what is the replacement cost of an item that cannot be replaced? Or what if the damaged or destroyed item is available at a much discounted price (such as older versions of smartphones or computers) but the insured realistically prefers the latest and greatest version that actually costs the same or less than the original cost new of the former item?

Which value is the more valid claim settlement? The form language provides no guidance. Better add that to your "check with carrier before making coverage promises to insureds" list.

So this December, while humming your favorite holiday tune and gazing lovingly upon the latest wondrous buying temptations, don't forget as insurance folks we are blessed with a gift that keeps on giving: Doing what we love provides our clients with proper insurance protection for what they love.

Merry Christmas! And as Tiny Tim would say, "God bless us, every one."

Chris Amrhein, AAI, is an insurance educator and speaker with more than 30 years in the industry. He also is the chief fun officer at insuranceisfun.com, and author of "Yes Virginia, There is Insurance."

You're invited to join us on Facebook

Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader

Your access to unlimited PropertyCasualty360 content isn’t changing.
Once you are an ALM digital member, you’ll receive:

Breaking insurance news and analysis, on-site and via our newsletters and custom alerts
Weekly Insurance Speak podcast featuring exclusive interviews with industry leaders
Educational webcasts, white papers, and ebooks from industry thought leaders
Critical converage of the employee benefits and financial advisory markets on our other ALM sites, BenefitsPRO and ThinkAdvisor