First-party property coverages provide for indemnification to the insured, for damage to or destruction of covered property by an insured peril. There are several concepts set forth in the previous sentence. First, there is the concept of insured capacity. In order to be entitled to payment under the first-party property coverages of a homeowners, condominium owners, townhouse owners, or tenants' policy, the person seeking payment must qualify as an insured.
Second, there is the concept of insurable interest. In order to be entitled to payment under the property coverages of a homeowners policy, the person seeking payment must not only qualify as an insured but also have an ownership or other insurable interest in the damaged or destroyed item of property. Although people commonly speak of property insurance as insuring property, it actually does not.
Rather, property insurance policies are personal contracts between the insured and the insurer. The insurer is actually insuring the insured's pecuniary interest in property. This pecuniary interest in property of an insured person is the concept of insurable interest.
Third, the item of damaged or destroyed property for which a loss payment is sought under the property coverages of a homeowners policy must qualify as covered property.
Fourth, in order for payment to be made for damage to or destruction of an item of covered property, the loss to the property must be the result of covered peril. Perils are active physical forces, fortuitous (that is, unexpected or unintended) in nature, that damage or destroy property.
INSURED CAPACITY: NAMED INSUREDS
Commonly, more than one person qualifies as an insured under a policy. The person named in a policy's declarations is the named insured. The named insured under the policy has greater rights and responsibilities than other persons who may also qualify as insureds. Home Owners Insurance Policies
Insured Capacity: Other Persons Insured
The policy's definitions sections will define who, other than the named insured, may qualify as persons insured under a homeowners policy.
For example, your mortgage lender is added to coverage as an additional insured to the extent of its security interest in your house, condominium, or townhouse. This is generally the outstanding loan balance. A mortgage lender is usually added to coverage under an insurance industry standard endorsement or provision known as a standard mortgage clause. Sometimes the language of the standard mortgage clause is included directly within the policy form, as opposed to being added as an endorsement to the policy.
The definition of insured under the ISO standard HO 3 homeowners policy includes such persons as:
- the named insured and his or her relatives who are residents of the named insured's household;
- nonrelatives of the named insured under the age of 21 who are residents of the household and are in the care of the named insured; and,
- full-time students who were
- (a) residents of the named insured's household before moving out to attend school, and
- (b) relatives of the named insured, and
- (c) under the age of 24, or
- (d) in the care of a named insured or a relative resident of a named insured and under the age of 21.
For example, some insurers' homeowners coverage persons insured definitions do not extend insured capacity to students off premises. Thus, if you have a child away at school or college, his or her personal property may not be covered if your policy does not include your child as an insured person while away at school or college. Home Owners Insurance Policies
What is most important to note is that residents of a household who are not relatives of the named insured and who are (a) over 21 and (b) not in the care of a named insured do not qualify as insureds. An example of this would be if the named insured is renting a room to a boarder or is letting a nonrelative live on the insured premises without charge.
In this situation, that person's property (i.e., his or her clothing and other possessions) is not covered by the named insured's homeowners policy, because such persons do not qualify as persons insured.
Insurable Interest
In order to qualify for coverage under the first-party property coverages of the homeowners policy, a person cannot simply qualify as an insured. He or she also must also have an insurable interest in the damaged or destroyed property for which payment of a loss is sought.
This principle is perhaps best illustrated by considering the situation of a mortgage lender that is an insured under a homeowners policy issued to the borrower on the home loan. The mortgage lender has a security interest in the residence to the extent of the outstanding balance owed by the borrower. By virtue of the mortgage clause in the homeowners policy, the mortgage lender has an insurable interest in the residence and is entitled under the policy to be named as a payee on any check issued by the insurer for damage to or destruction of the home.
The mortgage lender does not, however, have an insurable interest in the home as to any sums payable for damage to or destruction of the residence that exceed the outstanding loan balance, Nor does the mortgage lender have any insurable interest in the homeowner/borrower's personal property and is not entitled to payment for damage to or destruction of the borrower's personal possessions.
Next post, we'll talk about Covered Property Insurance. At mean time, if you are interested, you can get Home Owners Insurance Policies and learn more secrets of insurance.
