Policy Form Introduction: HO-8 Homeowners Modified Form
January 18, 2013 - ATB #001-13
As required by Florida Law, Citizens will begin offering the Citizens Homeowners 8 – Modified Coverage Form (CIT HO-8). This policy will be available effective February 28, 2013.
Agents are expected to be aware of the coverage restrictions in the CIT HO-8 and be able to explain them carefully and fully to prospective policyholders. Failure to do so could result in an applicant not fully understanding the significant limitations of the CIT HO-8 policy and increased E&O exposure to the agency.
The HO-8 policy is a named-peril policy that covers dwelling repair based only on common construction materials and methods as required by Florida Statute 627.351(6)(c)1.g. The new CIT HO-8 policy provides highly restrictive coverage that will pay policyholders significantly less in the event of a loss than the traditional CIT Homeowners 3 (HO-3) policy. This means it is most appropriate for homeowners who have the financial resources to cover a larger portion of a potential loss.
Although HO-8 policies can cost significantly less than traditional HO-3 policies, Citizens recommends extreme caution for homeowners considering purchasing the HO-8 policy strictly for the cost savings. Because of the policy’s major exclusions and lower payouts, there is the potential, in the event of a major claim, for increased costs to homeowners which could far outweigh any premium savings.
Eligibility for an HO-8 policy
Citizens’ HO-8 policies are available only for homes that:
- Meet all current HO-3 underwriting eligibility guidelines
- Are 51 years of age or older
- Have calculated replacement cost and Coverage A amounts of $200,000 or less
HO-8 policies, particularly those that include the Actual Cash Value loss settlement option, may not meet the minimum insurance requirements of many mortgagees. Before purchasing an HO-8 policy, homeowners should confirm with the mortgage holder whether the HO-8 policy and its Actual Cash Value option are acceptable. Failure to do so could result in costly retroactive coverage that is force-placed by the mortgage holder.
Critical Coverage Provisions
The following is an overview of the more critical coverage provisions in the new CIT HO-8 policy form. It is important that this information be communicated thoroughly in your discussions with any person applying for an HO-8 policy.
The HO-8 does not provide coverage for the peril of water, which accounts for roughly half of all Citizens’ homeowner claims. This means the following occurrences are not covered:
- Accidental discharge or overflow of water or steam from within a plumbing, heating or air conditioning system
- Accidental discharge or overflow from a household appliance
- Sudden or accidental tearing apart, cracking, burning or bulging of a steam or hot water system, air conditioning system, automatic fire protective sprinkler system or water heater
Note: This is not an exhaustive list of occurrences that are not covered. Please consult the CIT HO-8 policy form for the exact terms of coverage.
What HO-8 Covers
Coverage under the HO-8 named-peril policy is limited to 11 named perils:
- Fire or lightning
- Windstorm or hai
- Riot or civil commotion
- Vandalism or malicious mischief
- Theft (limited to $1,000 for any one loss)
- Volcanic eruption
Catastrophic ground cover collapse
Loss Settlement Basis and Options
Claims filed on the HO-8 policy will be settled based on common construction materials and methods that are functionally equivalent to and less costly than obsolete, antique or custom materials and methods that originally were used in the construction or item. The use of common construction materials and methods will apply to both the Actual Cash Value (ACV) and Replacement Cost loss settlement options.
Homeowners can choose between two HO-8 dwelling settlement options. The settlement basis elected at application can be changed only at renewal; midterm changes are not permitted:
- Replacement Cost – Losses to buildings are settled at replacement cost, based on common construction materials and methods, subject to the policy provisions. If the Replacement Cost option is selected, both increased Ordinance or Law coverage and Replacement Cost coverage on contents are available (CIT 04 90).
- Actual Cash Value Loss Settlement and Exclusion of Ordinance or Law Coverage (Endorsement CIT 04 81) – Losses to buildings are settled at ACV, based on common construction materials and methods, subject to policy provisions. A deduction is taken for depreciation. Policyholders can insure their home (Coverage A) at an ACV value between 50 and 79 percent of the calculated dwelling Replacement Cost. Ordinance or Law coverage automatically is excluded, and Replacement Cost on contents coverage is not available.
- The ACV option will not provide sufficient coverage to replace an insured dwelling in the event of a total loss and may not meet the insurance requirements of some mortgagees.
Property Not Covered
The HO-8 policy does not provide coverage for items including, but not limited to, jewelry, watches, furs, precious and semiprecious stones, firearms, gold or gold-plated ware, silver or silver-plated ware, platinum or platinum-plated ware. Refer to the policy for a complete list of excluded items.
Reduced Fungi, Wet or Dry Rot, Yeast or Bacteria Coverage
The HO-8 policy provides reduced Fungi, Wet or Dry Rot, Yeast or Bacteria coverage. The available sublimit provides $5,000 for property damage and $25,000 for liability.
Supplemental Application: Important Notice
Two applicant notices have been added to Citizens’ supplemental application due to the limitations of the HO-8 policy.
One notice addresses the restrictive nature of the HO-8 policy, and the other addresses the HO-8 ACV settlement option. These notices must be explained clearly and fully to the prospective policyholder, who must sign a consent form before the application is submitted.
The new notices are:
- Acknowledgement of Restrictive Coverage – The policyholder acknowledges they understand the restrictive nature of the HO-8 policy and that, as part of the restrictions, claims are settled based on common construction materials and methods. In addition, the policyholder acknowledges that water is not a covered peril and that Citizens offers a different policy providing broader coverage and limits of insurance.
- Actual Cash Value Loss Settlement and Exclusion of Ordinance or Law Coverage – The policyholder acknowledges that this option will not cover replacement cost of covered damages and that Ordinance or Law coverage is not available. The policyholder also confirms that they are rejecting a broader-coverage policy by selecting the highly restrictive coverage provided by the HO-8 policy.