From Insurance for Dummies by Jack Hungelmann

Coverages A, B, C, and D of Homeowners policies cover property damage to your dwelling, detached structures and their contents, and any increase in living expenses related to property damage. That’s how Homeowners policies are similar. How they differ is in the kinds of losses they cover. All Homeowners policies cover damage from fire or a windstorm, for example. But only some policies cover water damage from cracked plumbing or toilet overflows. And none automatically cover damage from a flood or an earthquake, though both coverages can be purchased. In order to make a good decision when choosing the Homeowners policy best suited to your needs, understanding your choices as to which causes-of-loss are covered and which are not is important.

Understanding the causes-of-loss-option

When you have a Homeowners claim for damage to your property, the first question is “Was the cause of the damage covered by the policy?” If “yes,” your claim is paid. If “no,” your claim is denied. Most insurance companies offer three choices for the types of losses covered — Basic Form, Broad Form, and Special Form.

• Basic Form causes-of-loss. Very limited coverage. Limited to a handful of covered causes-of-loss, including fire, wind, vandalism, and very limited theft. Rarely sold or purchased anymore.
• Broad Form causes-of-loss. Covers about 15 causes-of-loss. From my experience, the vast majority of the kinds of loss that damage a home or contents are covered. If you have a loss that’s on the list, you’re probably covered. If the cause of the loss isn’t on the list, you’re probably not covered.
• Special Form causes-of-loss. The best. Covers any accidental cause-of loss unless that cause-of-loss is specifically excluded. (Damage from floods, ground water, sewer backup, earthquakes, and a few others causes-of-loss aren’t covered.)

Tip. I flat out suggest that you not buy the Basic Form coverage. The coverage is way too restrictive. I like any of the choices that include the Broad Form coverage because the majority of your losses will be covered. But my favorite is the Special Form. It puts you in the driver’s seat. No matter how bizarre the cause, from Martian invasions to some kind of damage from new cyber technology, your loss is covered.

Here are some examples, many from my own experience, of losses not included in the Broad Form list that are covered by the Special Form:

• Massive interior water damage from roof leaks to a townhouse. $30,000 paid.
• Interior damage to ceilings and walls caused by melting ice and snow that backed up under the shingles. Claims have averaged $2,000 to $5,000.
• Scorched counters or floors from hot pans dropped onto them. Claims to replace counters and floors run $5,000 or more.
• Paint spills on furniture. The average claim runs $2,000.
• Spills of any liquids on oriental rugs. Claims to replace the rug range from $600 to $20,000.

Probably the most unusual example I’ve heard of involved someone who took a month-long winter vacation in Florida. To keep their pipes from freezing back home in the cold North, they set their thermostat at 50 degrees. Shortly after they left home, the thermostat malfunctioned and never shut off. The combination of 90-degree heat and winter dryness warped all the floorboards in the house, requiring the entire flooring to be torn up and replaced. Most of the floor coverings — tile, carpet, and so on — which had to be removed to get at the floor, also had to be replaced. The claim cost was in excess of $20,000.

Neither “thermostat malfunction” nor “excessive heat” is on the list of covered losses on the Broad Form. But the Special Form covered the loss in full because “thermostat malfunction” is not on the list of exclusions. The annual extra insurance cost for the Special Form over the Broad Form? Probably $50 a year. ( I’d say the homeowner with the faulty thermostat got his money’s worth!)