Summary: The American Association of Insurance Services (AAIS) homeowners program includes forms that provide coverage for the owner-occupant of one to four family dwellings used for private residential purposes. There are forms for the tenant homeowner and for cooperative apartment or condominium owners. There are seven coverage forms in all, each providing both property and liability coverages. Following is a brief overview of the program followed by a comparison of the most commonly used homeowners form.

Topics covered: Introduction Eligibility Rating information Overview of forms Comparison of form 3 Ed. 2.0 to HO 0003 01 06 Definitions Coverage A – residence Coverage B – related private structures Coverage C – personal property Incidental property coverages Perils insured against – coverages A, B, C, and D Exclusions that apply to property coverages Principal liability coverages Incidental liability coverages Exclusions that apply to liability coverages What must be done in case of loss or occurrence How much we pay for loss or occurrence Policy conditions

Introduction

The American Association of Insurance Services (AAIS) has filed a revised homeowners program with an effective date of September 2008. The prior forms were revised in 2006. The prior revision was in 1988. The current forms are distinguished from the earlier forms in that they are numbered HO 0001 01 06, HO 0002 01 06, etc.; the earlier equivalent forms were referred to as Form 1, Edition 2.0, Form 2, Edition 2.0. AAIS notes that homeowners form HO 0008 01 06 has an extremely limited use, so many of the coverage options previously available for use with the form have been withdrawn. Basic form HO 0001, however, is still available with the full range of coverage options.

Unlike the earlier forms, the new forms do not contain any provisions that apply to mobile homes. For example, form 3, under loss settlement terms, states “The Replacement Cost Terms apply only to buildings covered under Coverages A and B that have a permanent foundation and roof. They do not apply to… mobile homes whether or not on a permanent foundation.” Now, the applicable provision states the replacement cost terms apply only to buildings with a permanent foundation and roof, but make no reference to the coverage not applying to mobile homes. This is because the mobile homes will be addressed by means of a mandatory endorsement filed only in the mobile homeowners program.

Endorsements, discussed elsewhere (see Common Endorsements—AAIS Program) have undergone the same numbering system as the homeowners forms. For example, the scheduled personal property coverage endorsement is HO 3061 01 06 as opposed to ML-61 1.0.

For the remainder of this discussion, for simplicity's sake, we will refer to the forms and endorsements simply as HO 0002 or HO 3061, without the edition date.

Eligibility

The AAIS forms HO 0001, HO 0002, HO 0003, HO 0005, and HO 0008 may be used to cover a one- to four-family dwelling that is owner-occupied. Each family unit may house no more than two roomers or boarders, or two families. Homeowners forms may be used to insure co-owners of a two- to four-family dwelling, provided that the policy is issued in the name of only one owner. Each owner must occupy a separate apartment within the building. The other owner's interest may be protected through use of endorsement HO 6041, additional insured. (This endorsement provides coverage as the co-owner's interest may appear with regard to the described premises. Liability and medical payments coverage is limited to loss arising out of the described premises; for this reason, a co-owner must carry his or her own tenant homeowners insurance.)

A homeowners policy may also be issued to the occupant of a dwelling who is purchasing the dwelling under a long-term contract (rules do not allow for the seller acting as mortgagee), the occupant of a dwelling under a life estate arrangement, or the owner and intended occupant of a dwelling under construction. A homeowners policy may also be issued to the owner of a seasonal dwelling that meets all eligibility requirements.

Form HO 0004 can be used to insure a tenant of a dwelling or apartment, or the owner-occupant of a dwelling, condo, co-op, or building containing an apartment that is not eligible for usual homeowners coverage, such as an apartment located over a retail establishment or in, for example, a building containing a hundred apartments. Even so, the apartment must be used for residential purposes, and be occupied by no more than one family with two boarders or roomers, or two families with no boarders or roomers.

Form HO 0006 is used to insure the owner-occupant of a condominium or cooperative that is used for residential purposes, occupied by no more than one family with no more than two boarders or roomers, or two families with no boarders or roomers.

Certain incidental business activities of the insured are permitted on the residence premises, subject to insurer guidelines. For the insured with a home-based business, AAIS has developed a home-based business coverage option, which may be attached to an AAIS homeowners, farmowners, or mobile homeowners policy. For a brief discussion of this form, see Common Endorsements—AAIS Program or, for a more complete discussion, go to The AAIS Home-Based Business Coverage Form—Property and The AAIS Home-Based Business Coverage Form—Liability.

Rating Information

The AAIS manual contains program information, submission and rating instructions, loss costs, and explanations of available coverage options. Generally, the rating approach is similar to ISO homeowners rating. There are some differences to note, however. The ISO manual may be used countrywide, with state exception pages included for a particular state. AAIS provides a separate manual for each state.

The AAIS program uses a simplified fire protection classification. Instead of the usual ten classes, AAIS uses three. These are “protected,” “partially protected,” and “unprotected.” “Protected” buildings are those located within five miles of a responding fire department, and within 1,000 feet of a fire hydrant. Alternatively, the building may be within 1,000 feet of a year-round water source (in other words, a pond subject to freezing will not qualify) of at least 3,500 gallons, and the responding fire department must have pumper truck capabilities; or, the responding fire department must have a pumper/tanker truck capable of carrying at least 3,500 gallons. “Partially protected” buildings are those located within five road miles of a responding fire department; however, the water source requirements are not met. “Unprotected” buildings are those not meeting any of the above requirements (similar to class 10 in the usual classification system). Of course, this classification system does not mean that dwellings located in any of these areas are automatically eligible for coverage; the underwriting guidelines of each company should be consulted.

The rating procedures are different for ISO and AAIS. Neither program, though, furnishes rates. Both programs include loss costs, which then must be multiplied by the individual company's multiplier to obtain a final rate. The ISO rating procedure consists of finding a key premium based on territory; multiplying this by a form factor; multiplying the result by the protection-construction factor; and, finally, multiplying this figure by the key factor. (The company multiplier is then applied.) In the AAIS procedure, the pertinent base amount for the applicable territory is multiplied by the applicable policy form relativity and rounded to the nearest whole dollar. This amount is then multiplied by the applicable protection/construction relativity and rounded to the nearest whole dollar. This amount is then multiplied by the applicable amount of insurance relativity and rounded to the nearest whole dollar. In both rating procedures any additional premium for optional coverages must be added separately.

Overview of Forms

The AAIS homeowners program includes seven forms, as opposed to ISO's six (ISO has withdrawn the HO 00 01 in most jurisdictions). Forms HO 0001, HO 0002, HO 0003, HO 0005, and HO 0008 provide property coverages consisting of coverage for the residence, related personal property, and additional living costs or loss of rent. Form HO 0004, the tenant homeowners form, covers personal property, additional living costs, or loss of rent. Form HO 0006, the unit-owners form, covers personal property, additional living costs or loss of rent, as well as fixtures, additions and alterations, and structures owned by the insured. Coverage D, additional living costs, is now 30 percent of the coverage A amount for one or two family dwellings, and 20 percent of the coverage A amount for three or four family dwellings. This applies to forms HO 0001, HO 0002, HO 0003, and HO 0005.

The term “described location” means “the one-to four-family house, the townhouse, or the row house where 'you' reside and which is shown on the 'declarations' as the 'described location'. It includes related private structures and grounds at that location.” As noted earlier, reference to a mobile home has been deleted (previously, “residence” included “a one- or two-family mobile home used mainly for family residential purposes”). The ISO form defines “residence premises” as the “one family dwelling where you reside, the two, three or four family dwelling where you reside in at least one of the family units….” In both programs, a mobile home can be insured through endorsement. Forms HO 0001 and HO 0008 are intended for situations where the insured either does not desire, or does not qualify for, the broad or special form coverages. Form HO 0005, the special building and contents form, provides open perils coverage for building and personal property.

Forms HO 0001, HO 0002, HO 0004, HO 0006, and HO 0008 cover loss caused by fire or lightning, windstorm or hail, explosion, riot or civil commotion, aircraft, vandalism, vehicles, sudden and accidental smoke damage, sinkhole collapse, volcanic eruption and theft. In a broadening of coverage, vandalism is now included in HO 0008, rather than an optional coverage as in the earlier edition. Theft coverage in HO 0008 is new in this form; however, it is limited to $1,000, and applies only to theft that occurs from on the described premises. Forms HO 0002, HO 0004, and HO 0006 cover loss caused by the previous perils, as well as falling objects, weight of ice, snow, or sleet, sudden and accidental tearing apart, cracking, burning or bulging, accidental discharge or overflow of liquids or steam, freezing, and sudden and accidental damage from artificially generated electrical currents. Form HO 0003 provides “open perils” coverage for the dwelling; the perils enumerated above apply to personal property. Form HO 0005, the special building and contents form, provides “open perils” coverage for the dwelling and personal property. For a more complete discussion of the coverages and the pertinent exclusions, see Property Coverages—AAIS Homeowners.

There are fifteen incidental coverages (called additional coverages in the ISO forms); however, not all forms contain all the coverages. All of the forms include coverage for association deductible (new with this filing); credit card, forgery, and counterfeit money; debris removal; loss to covered property removed from the insured premises to prevent damage from a peril insured against; fire department service charge; credit card, forgery, and counterfeit money; trees, plants, shrubs, or lawns; glass breakage; reasonable repairs; refrigerated food spoilage; and loss assessment. In the prior edition, the coverage for reasonable repairs was found in the loss conditions. Now, the coverage is found in the incidental coverages, and corresponds to the loss condition requiring the insured to take reasonable measures to protect the property at the time of loss. Forms HO 0002, HO 0003, HO 0004, HO 0005, and HO 0006 cover collapse, grave markers, increased cost—ordinance or law, and liquid fuel remediation. Form HO 0004 includes coverage for tenants improvements, but not coverage for property in rental units, a new coverage found in HO 0001, HO 0002, HO 0003, and HO 0005. Form HO 0005 adds lock and garage door transmitter coverage. As a comparison, the ISO additional coverages are: debris removal; reasonable repairs, trees, shrubs and other plants; fire department service charge; property removed; credit card, fund transfer card, forgery and counterfeit money; loss assessment; collapse; glass or safety glazing material; landlord's furnishings; and ordinance or law. As with the AAIS program, not all the ISO homeowners forms contain all the additional coverages. For a discussion, see ISO Homeowners Section I.

The AAIS forms provide liability coverage up to the limit of insurance for the amount that an insured may become legally obligated to pay as a result of bodily injury or property damage caused by a covered occurrence. Medical payments to others coverage pays necessary medical expenses for injury to a person on the insured's premises with the insured's permission, or for injury to a person away from the insured's premises if the bodily injury arises from a condition on the insured premises or from an activity of the insured. Medical payments coverage also applies to an injury caused by a domestic employee of the insured while performing his or her duties, or to an injury sustained by a domestic employee that arises from performance of those duties.

There are eight incidental liability coverages. These are: damage to property of others; contracts and agreements; claims and defense cost; first aid expense; motorized vehicles; watercraft; business; and loss assessment. The ISO form contains four additional section II coverages: claim expenses, first aid expenses, damage to property of others, and loss assessment. Coverage for certain contracts and agreements, motorized vehicles (such as those used to service the insured premises), watercraft (those under a certain length and horsepower), and business (such as the rental of an insured location on an occasional basis) is included in the main body of section II. For a more complete discussion, see Liability Coverages—AAIS Homeowners.

Comparison of AAIS HO 0003 09 08 to ISO HO 00 03 05 11

This policy was designed with the intent to keep pace with the ever changing insurance industry. Water, mold, collapse, “kiddie cars,” and other issues that have developed and changed over time are addressed. The policy begins with the definitions section, and then proceeds through the property coverages, liability coverages, and other provisions. Throughout this discussion revisions with the 09 08 form will be addressed. Language that remains the same will not be discussed so that the changes may be highlighted.

Definitions

3. “Actual cash value” means the cost to repair or replace property using materials of like kind and quality, to the extent practical, less a deduction for depreciation, however caused.

4. Under the Liability Coverages provided by this policy, “aircraft” means an apparatus or a device designed or used for flight, but this does not include:

a. a model aircraft that is not designed or used to carry people or cargo;

b. a “hovercraft”; or

c. a model hovercraft that is not designed or used to carry people or cargo.

8. “Described location” means the one- to four-family house, the townhouse, or the row house where “you” reside and which is shown on the “declarations” as the

“described location”. It includes related private structures and grounds at that location.

However, if the “described location” is a townhouse or a row house, it includes only related private structures and grounds at that location that are used or occupied solely by “your” household for residential purposes.

10. “Employee” means a person employed by an “insured”, or a person leased to an “insured” under a contract or an agreement with a labor leasing firm, to perform duties other than those performed by a “domestic employee”.

11. “Fungi” means any kind or form of fungus, including but not limited to mildew and mold, and any chemical, matter, or compound produced or released by a fungus, including but not limited to toxins, spores, fragments, and metabolites such as microbial volatile organic compounds.

12. Under the Liability Coverages provided by this policy, “hovercraft” means a self-propelled motorized ground effect machine or air cushion vehicle designed or used to travel over land or water. This includes, but is not limited to, a flarecraft.

However, “hovercraft” does not include:

a. a model hovercraft that is not designed or used to carry people or cargo;

b. an “aircraft”;

c. a model aircraft that is not designed or used to carry people or cargo;

d. a “motorized vehicle”;

e. a “watercraft”; or

f. a model watercraft that is not designed or used to carry people or cargo.

16. “Motorized vehicle” means:

a. a self-propelled land or amphibious vehicle, regardless of method of surface contact, but this does not include a:

1) “hovercraft”;

2) model hovercraft that is not designed or used to carry people or cargo;

3) “watercraft”; or

4) model watercraft that is not designed or used to carry people or cargo; or

b. a trailer or semi trailer that:

1) is attached to or being carried on or towed by; or

2) becomes detached while being carried on or towed by; a vehicle described in a. above.

21. “Vermin” means an animal of a type that is prone to enter or burrow into or under a structure to seek food or shelter, including but not limited to:

a. armadillos;

b. bats;

c. opossums;

d. porcupines;

e. raccoons;

f. skunks; and

g. snakes.

22. Under the Liability Coverages provided by this policy, “watercraft” means an apparatus or a device primarily designed to be propelled on or in water by engine, motor, or wind, but this does not include:

a. a model watercraft that is not designed or used to carry people or cargo;

b. a “hovercraft”;

c. a model hovercraft that is not designed or used to carry people or cargo;

d. a “motorized vehicle”;

e. an “aircraft”; or

f. a model aircraft that is not designed or used to carry people or cargo.

Analysis

These definitions were all new to the AAIS HO 0003 policy and had not been in the prior policy. These terms were added to clarify meaning within the policy. A clear definition of actual cash value is necessary for the handling of claims. Of note is the inclusion of depreciation in the definition. For example, a ten year old roof is damaged and the cost to repair the damage is $5000. The expected life span of the roof is twenty years; since the roof is half way through its expected life span, depreciation of fifty percent is deducted from the settlement leaving a settlement of $2500.

Aircraft were not previously defined in the policy, and the new definition specifically indicates that aircraft are designed for flight and that hovercraft are not aircraft. A distinction is made between aircraft designed to carry passengers or cargo from model aircraft; model aircraft are not included in the definition of aircraft. When the policy lists exclusions for aircraft, as model aircraft are not included in the definition of aircraft, they are an exception to those exclusions. Drones are not addressed as the policy predates the current drone popularity.

Described location has been broken out of the definition of insured premises to stand on its own. It replaces the term residence in the old form and further specifies that if the home is a townhouse or row house, that the only related private structures and grounds that are covered by the policy are those used only by the named insured's household for residential purposes. This is to avoid providing coverage for community property such as a clubhouse or exercise room within the common property of all residents.

Employee was another new term in this edition of the policy. It is set aside separately from domestic employee, and describes someone employed by an insured that does not fit the definition of domestic employee.

The term fungi has been added to the policy as well and describes any form of fungus and includes mold, mildew, and compounds that may be released by a fungus. Of note is this inclusion of spores, toxins, and compounds that may be released from fungi in the definition itself.

Hovercraft are defined here in order to differentiate them from aircraft. While aircraft are defined as being used for flight, hovercraft are defined as being ground effect machines or air cushion vehicles designed to travel over land or water. Hovercraft do not travel high above the ground; the average lift off the ground ranges from six inches to one hundred and eight inches depending on the size of the vehicle. Similar to the aircraft definition, it is specified that watercraft and aircraft are not considered hovercraft, nor are model hovercraft that are not designed or used to carry people or cargo.

The language for motorized vehicle was expanded and the separate definition for motor vehicle was removed. Also removed is the wording for motorized vehicle that includes a vehicle designed for use on public roads. The definition of motorized vehicle now specifically excludes hovercraft, model hovercraft, watercraft and model watercraft.

Vermin are now defined in the policy; they are described as animals that enter or burrow in or under a dwelling to seek food or shelter and include armadillos, bats, raccoons, skunks, and snakes. This area often gets confusing; are insects vermin or animals? What exactly is an animal? Snakes are included in the list of examples and they are reptiles; what differentiates a reptile from an insect from an animal? A return to basic biology reminds us that in the natural world living creatures are differentiated by Kingdom, Phylum, Class, Order, Family, Genus, and Species. There are five different Kingdoms; Animals, Plants, Fungi, Protist (includes algae and protazoa), and Moneran (bacteria). Armed with this information, insects and reptiles are indeed part of the animal family. The question now becomes whether or not the animals have a tendency to enter structures for shelter or to seek food.

Watercraft are described as vehicles designed to be propelled on or in the water but does not include hovercraft, aircraft, or motorized vehicles. The policy has taken care to specifically describe these other vehicles in their own definitions.

The terms motor vehicle and recreational motor vehicle were removed from the policy. The essence of these definitions was incorporated into the definition of motorized vehicle, so these terms are no longer needed.

13. “Insured” means:

a. “you”;

b. “your” relatives if residents of “your” household;

c. “your” relatives under the age of 25 years who:

1) are financially dependent upon “you”;

2) are students enrolled in school full time, as defined by the school; and

3) were residents of “your” household just before moving out to attend school;

d. persons, other than “your” relatives, under the age of 21 years who:

1) reside in “your” household; and

2) are in “your” care or 'in the care of” your” resident relatives;

e. persons, other than “your” relatives, under the age of 21 years who:

1) are in “your” care or in the care of “your” resident relatives;

2) are students enrolled in school full time, as defined by the school; and

3) were residents of “your” household just before moving out to attend school; or

f. solely with respect to the Liability Coverages provided by this policy:

1) persons in the course of acting as “your” real estate manager for the “described location”, but only with respect to acts falling within the scope of such duties;

2) persons while engaged in the employ of an “insured” as defined in a., b., c., d., or e. above, but only with respect to a “motorized vehicle” to which this insurance applies;

3) persons using a “motorized vehicle” to which this insurance applies on an “insured premises” with “your” consent, but only with respect to such use;

4) persons or organizations accountable by law for “watercraft” or animals:

a) owned by an “insured” as defined in a., b., c., d., or e. above; and

b) to which this insurance applies; but only with respect to such “watercraft” or animals. However, this does not include persons or organizations using or having charge or control of such “watercraft” or animals in the course of “business” or without the owner's consent; or

5) persons or organizations accountable by law for a motorized golf cart:

a) owned by an “insured” as defined in a., b., c., d., or e. above; and

b) to which this insurance applies; but only with respect to such golf cart. However, this does not include persons or organizations using or having charge or control of such golf cart without the owner's consent. The phrase an “insured”, wherever it appears in this policy, means one or more “insureds”.

14. “Insured premises” means:

a. the “described location”;

b. that part of any other premises used by “you” as a residence and shown on the “declarations” as an “insured premises”;

c. that part of any other premises used by “you” as a residence and that is acquired by “you” during the policy period for such use;

d. premises used by “you” in connection with a premises described in a., b., or c. above;

e. cemetery lots and burial vaults of an “insured”;

f. that part of a premises not owned by an “insured” and that is temporarily used by an “insured” as a residence;

g. that part of a premises occasionally rented to an “insured” for other than “business” purposes; and

h. vacant land owned by or rented to an “insured”. This includes land where a one- to four-family house, a townhouse, or a row house is being built for use as an “insured's” residence. This does not include farm land.

15. “Limit” means amount of insurance.

18. “Pollutant” means:

a. any solid, liquid, gaseous, thermal, or radioactive irritant or contaminant, including acids, alkalis, chemicals, fumes, smoke, soot, vapor, and waste. Waste includes materials to be disposed of as well as recycled, reclaimed, or reconditioned; and

b. electrical, magnetic, or electromagnetic particles or fields, whether visible or invisible, and sound.

Analysis

The definitions of insured, insured premises, limit, and pollutant have all been revised. Insured has been revised to include relatives under the age of twenty five who are financially dependent on the named insured or are in school full time, and full time as defined by the school. The student must have been a resident of the named insured's household immediately before moving out to attend school. The language specific to persons under age twenty one who are not relatives has some minor language modifications but coverage remains the same.

Coverage for persons acting as the named insured's real estate manager for the described location are covered only for acts that fall within the scope of their duties; the same applies to persons in the employment of the insured, or those accountable for animals or watercraft owned by the insured. Liability coverage is available to these other persons only to the extent that they are acting on behalf of or at the direction of the named insured. The prior policy was not so specific.

A new section has been added to this coverage and that is for persons or organizations accountable by law for a motorized golf cart owned by a named insured and to which the policy applies. People who have taken the golf cart without the named insured's consent are not covered.

The definition of insured premises, in the clause describing land on which a dwelling is being built for the named insured is specific as to the type of residence – a one- to four- family house, a townhouse, or a row house. The prior policy only mentioned land where a residence is being built, with no limitation on the type of residence.

Limit has been revised slightly and now reads “amount of insurance” instead of “amount of coverage that applies”.

A pollutant now includes electromagnetic particles or fields.

Coverage A – Residence