Personal lines question: HO3 v. DP3

[Rochambeau]

OK, we have lots of clients buying new homes in the depressed market and renting their current home until the property market turns up again. Consequently, we are having to try to get them insured onto a tenant occupied DP3 but try as I might, I cannot come up with a compelling reason to give the insured to do so.

Our primary carrier (75% of our book) will non-renew (but they will not mid-term cancel) an HO3 that is tenant occupied. So I started tearing into their DP3 and HO3 forms to come up with a good coverage reason for the insured to do it so that we can have the risk properly classified for the carrier. Loss of rents is built into the HO3 form they use, so forget that. I simply can't find anything that would justify me telling my client "take this lower coverage for a higher price so that the company will feel better about insuring you". Even worse, they short rate the HO3 if you cancel it mid-term

I seriously want to do right by my companies, but not at the expense of the client, and I certainly will not lie or exaggerate to get the insured to switch it. As it is, it usually becomes a question of having to wait up to a year for a renewal to come up so they can be non-renewed after I explain to them that there is no down side for them to keeping the HO3 as long as the company will let them.

So what am I missing, if anything? I have brought this up with the carrier and they kind of just shrug their shoulders as they cannot come up with a compelling reason for the insured to switch either, at least not until they have the non-renewal staring them in the face.

[mccluney]

Gee how about that the eligibility for a HO-3 is that it is owner-occupied. The dwelling must be the principle residence of the insured. I recommend that you read your companies HO-3 form carefully and increase your E&O insurance limits. You might wish to discuss the coverage with the companies property claims manager. Oh and good luck if their is a liabilty claim against the owner. I believe tht you will find an exclusion for property rented to others by an insured.

[steffycat]

As far as I knew, once a dwelling was no longer owner-occupied, it had to move to a dwelling form (no longer eligible for homeowner form coverage)...at least that is my company's philosophy. It's considered a material change in the risk.

[d's insurance store]

Ahhh, but for the olden times when insurance companies were run and staffed by people who knew insurance...but, I digress....
If I were in your shoes, I would initiate an underwriting conversation on every one of these, and then document the answer that you've provided in your post, attributing the date, time and person you talked with and let it go until the non renewal doc goes out. If you've looked at the policy language in the HO3 and determined there are no exclusions for tenant occupied exposures, then in my admittedly non-legal capacity of offering free advice, I think you're home free.

Of course, if you find yourself waking up at night in a cold sweat, dreaming of a Perry Mason like courtroom drama with you as defendent in an E&O action, then you could always use the services of another carrier market.

[ngudgell]

You are on a tight rope with this. I am in agreement with the other folks. If you know that the dwelling is no longer owner occupied, you need to move it to a DP3. The explaination to give your client is that they NO LONGER have coverage under a HO3/5 while rented to others. DP3 does not have the great endorsements that a HO3 or 5 has, but you can easily endorse most of what is needed depending on the carrier.

GOOD LUCK!

[tsntyler]

I think that all you need to do is look the definition in a Webster's Dictionary.

HOMEOWNER does NOT equal TENANT OCCUPIED.......end of story.

If the current company will NOT make the change to a DP3, I am SURE that there are other companies that will.

[wrxnut25]

If you're client's are leaving personal property at the residence that is being rented like furniture, they may not have coverage for theft, many HO3's exclude theft of property from that part of the residence being rented or leased. Whereas, most DP3 policies do provide coverage for Landlord's Furnishings.

[gregcw]

One other issue that hasn't been addressed here, in addition to the liability issues, is coverage on the insureds personal property. There is a 10% limitation to the personal property located at an "additional residence occupied by the insured".

The exclusion mentioned by mccluney could vary by the policy form, edition, and whether it's AAIS or ISO. AAIS appears to be a bit broader than ISO but still has more limitations than the commercial liability forms. Under the AAIS form the Property Damage is specifically not liberalized and the liability is clouded by the language that says
7. Business-- .. a. the rental fo that part of the "insured premises" that is usually occupied by "you" as a residence.

In addition to getting the home onto a DP-3 with a CGL you need to get the insured onto an HO-4 A.S.A.P.!!!

[FIGLEY]

I believe the problem here lies in the elgibility requirements for a HO, and the form attached to the policy.

If the property is eligible for coverage on the date of issue (owner occupied) and later becomes non-owner occupied, I can find nothing in the form which voids coverage. There are some limitations such as heat maintenance if the property is vacant, but I believe any company would have a hard time trying to deny a claim because the propety became less than elgible after the original inception date.

Granted, the policy should not be renewed , but coverage is there until expiration date...

[Rochambeau]

Thanks for the responses. In re-reading the business exclusion referenced by mccluney I realize that I mis-interpereted "rented by" an insured to mean a residence rented TO an insured. I think I read it as an exclusion of other locations and, figuring that that was its function, did not recognize its applicability to the scenario I was concerning myself with.

That is just what I needed, a gap big enough to drive a truck through.