There is quite a bit of confusion on what the difference between the three coverage forms for the property section on a Homeowners insurance policy: Basic, Broad and Special Form. There are distinct differences between these forms but how they apply can be a bit more vague. One item we’ll need to know is: What is a peril? A peril is a specific risk or cause of loss covered by an insurance policy. We’ll take a look at the different forms and examples of how they would apply. We can also see which one might be the best for you!
The first coverage form is Basic Perils. This form is very rarely used with Homeowners policies but does come in to play more often with Dwelling Fire policies which are used for rental dwellings, secondary/seasonal homes, etc. Below are the covered perils:
· Fire or Lightning
· Windstorm or Hail
· Riot or Civil Commotion
· Volcanic Activity
These are fairly straight forward but come with some limitations which are defined within this area of the policy or in the following section, Exclusions. For example, the Falling Objects perils further states: This peril does not include loss to property contained in a building unless the roof or an outside wall of the building is first damaged by a falling object. Damage to the falling object itself is not included. If you suffer damage caused by one of these perils and it is not excluded elsewhere in the policy, your insurance policy will provide coverage.
The second coverage form is Broad Perils. This is more commonly used in Homeowners insurance for personal property coverage but still not commonly used to cover Dwellings or Other Structures. It is also used for Dwelling Fire policies like the previous form. This form works the same way as the Basic Perils form but simply adds the additional perils below:
· Falling Objects
· Weight of Ice and Snow
· Accidental Discharge Or Overflow Of Water Or Steam (Plumbing, HVAC, appliance)
o Ex. Pipes break due to excessive pressure or corrosion
· Sudden And Accidental Tearing Apart, Cracking, Burning Or Bulging (Appliances)
o Ex. Water heater cracks and water escapes
· Freezing of Plumbing
· Artificially Generated Electricity
o Ex. Power failure, surge from power line
These are a little less straight forward and do not occur as often as the perils covered under the Basic Perils coverage form. Again, if you suffer damage caused by one of these perils and it is not excluded elsewhere in the policy, your insurance policy will provide coverage.
The last form, Special or Open Perils, provides the most coverage but is the most difficult to understand. The Homeowners form language will say something similar to:
We cover risk of accidental direct physical loss to covered property described under Coverage A - Dwelling and Coverage B - Other Structures except for losses excluded elsewhere in this policy.
On the previous coverage forms, it is the insured’s responsibility to show that the loss was caused by one of the covered perils. The special form shifts the burden to the insurance company to prove that the loss is not covered by the policy. This is a subtle difference that provides a huge benefit: If the insurance company cannot determine with certainty what the cause of loss was, they have to cover it. This can give you a much broader interpretation of coverage when any ambiguity is involved.
So what is covered by the Special Perils coverage form? That is not an easy question to answer since the form covers anything that isn’t specifically excluded. Therefore, it is impossible to list everything that the form covers. However, we can take a look at some examples to get a better idea of what is covered. Here a few examples to consider:
· A deer smashes through a window in home (or even walks through an open door!) and panics causing damage to furniture, electronics, walls, etc. Broad form does not includes animals as a peril. Special form only excludes birds, vermin, rodents or insects. Not deer!
· The Broad form covers damage CAUSED by a falling object but not the falling object itself. For example, you have an ornate chandelier that falls and damages your table. The Broad form would cover the table. Special form would cover the chandelier and table.
· You are painting the ceiling of your home and drop the paint which spills on a couch and then the carpet. Broad form would cover the damage of the paint can hitting an object but not the damage caused by the paint. Special form would cover both.
· You are doing some work in the attic when you misstep and fall through the ceiling and land on the entertainment center which breaks along with the electronics, DVD’s and games in the entertainment center. Broad form would not cover anything. Special form would cover everything but your injuries!
· Your child decides they want to help with some home repair and grabs a hammer and proceeds to damage your cabinets, windows and some electronics for good measure! Broad form would not cover any damages. Special form would cover all of these damages.
· Unbeknownst to you, your roof has sprung a leak and during the rainstorm today water comes through the roof (which isn’t damaged by the storm), through the ceiling and damages your furniture. Broad form does not provide any water cover other than the limited perils listed above. Special form will not cover flood or similar damages but provides much broader water coverage. In this case, Special form would cover the damages and Broad form would not.
There are a number of different examples that can also be included in here but this list provides some ideas to consider and gives you an idea on why in might be a good idea to purchase the Special Perils coverage form.
What coverage do you have? Most HO3 Homeowners policies (This is the most common policy form for your typical home.) provide Special Perils coverage for Coverage A – Building and Coverage B – Other Structures. However, Coverage C – Personal Property will be covered on a Broad Form basis. You can purchase an endorsement that will give you Special Form coverage for Coverage C – Personal Property and the Declarations will typically list the form if you have purchased this coverage. If you are not sure, contact your agent.
Lastly, should you buy Basic, Broad or Special Perils? The answer is typically narrowed down somewhat because of what we discussed in the previous paragraph. You are usually only deciding whether you should keep Broad Perils for Personal Property or if you should purchase the Special Perils endorsement. It comes largely down to personal preference for insurance coverage. If you want the best and broadest coverage that provides more coverage for any uncertain circumstances, you should purchase the Special Perils coverage form.
If you are still unsure of what coverage is the best for you, please contact us at the Frederick Agency today, 419-732-3171. We are here to help you make an information decision about what insurance coverage is right for your family or business.
By Brennan Madison