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 insurance 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.
The persons insured provisions of homeowners policies issued by insurers that use their own forms may differ. Depending on your particular circumstances, the definition of who does and does not qualify as an insured under different insurers’ policies may be of importance to you. For example, some insurers’ homeowners insurance 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.
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 insurance 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.
Covered Property
Answering what is covered property is generally easy. It will be set forth in your policy. As to the dwelling and other structures (some policies use the term separate structures) portion of the ISO HO 3 policy, the policy does not cover land—including the land on which the dwelling or other structures are located. Under the other structures coverage, other structures that are rented or held for rental to any person who is not a tenant of the dwelling are not covered.
There is an exception to this provision for other structures rented for use solely as a private garage. Nor does the other structures coverage apply to structures from which any business is conducted. The clear import of this limitation, which corresponds with several other policy provisions discussed later, is that homeowners policies are intended to cover risks of loss incidental to the personal use and occupancy of a dwelling and associated other structures—not an insured’s business activities. If an insured has business-related loss exposures, the insured needs to buy a separate business or commercial policy to cover those nonpersonal, business loss exposures.
What constitutes covered property under the personal property provisions of a standard ISO HO 3 homeowners policy is defined by three separate categories.
These are:
1. covered property;
2. property which is covered, but for which the policy establishesnstrict limits on the dollar amount of coverage; and,
3. property that is not covered.
The concept of covered property is stated broadly initially and is then limited by the two sections of the policy that follow. In other words, the boundaries of coverage are defined more by exclusions than they are by the grant of coverage itself. Covered property is personal property owned or used by an insured anywhere in the world. In addition, after a loss (and at the insured’s request), coverage extends to personal property owned by others (including a guest or residence employee) while that personal property is located on the residence premises occupied by an insured.
