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Dwelling or Contents?

Summary: There are a number of items common to daily living that cause difficulty to insurers and their customers because it is not certain whether damage to such items should be covered by insurance on the dwelling or by that on dwelling contents. Wall-to-wall carpeting, and, to a lesser extent, draperies or curtains, and lighting fixtures continue to be a particularly active subject of discussion and argument. (Area rugs are always considered personal property.) This discussion focuses on policy language and interpretation in both the Insurance Services Office (ISO) and American Association of Insurance Services (AAIS) homeowners forms, and concludes with court determinations of coverage issues. Although some of the cases cited were decided years ago, all have been verified as being valid case law.

Topics covered: Aspects of coverage Homeowners language unclear AAIS homeowners The guiding principles Carpet over finished floor Court decisions Draperies and other window coverings Lighting fixtures

Aspects of Coverage

Often there is no question about a loss itself being covered. Few insureds care which insurance company pays a loss, or to which policy or line of coverage a company may charge it, as long as full payment is made. But there are at least five aspects of the question “is carpeting dwelling or contents?” that can, and often do, give rise to serious arguments:

1.Insurance on one item—most often the dwelling—covers the peril that caused the damage, while named perils insurance on the other item does not. For example, if the sun’s rays coming through a window scorch both a floor and a sofa, there is no exclusion in the open perils form HO 00 03 10 00 for damage to the floor (part of the dwelling); however, scorch is not a named peril for contents coverage. (This example is a good selling point for open perils dwelling and contents coverage, as with the ISO HO 00 05 10 00 , or the AAIS HO 0005 01 06 .

2.Although the peril that caused the loss is the same for both items, the amount of insurance for one item is exhausted by payment of loss to that property, as when a fire completely destroys a dwelling and contents, and contents coverage is exhausted.

3.The insured has purchased coverage on one item, but not the other—for example, a fire policy on a dwelling only.

4.Coverage for a building is for replacement cost while coverage for contents is on an actual cash value. (Note that most homeowners policies specifically exclude carpeting from the building replacement cost provision. Attaching homeowners personal property replacement cost endorsements ISO HO 04 90 10 00 or AAIS [HO 4855 01 06.pdf^HO 4855 01 06^HO 4855 01 06 extends replacement cost coverage to carpeting—whether covered as building or personal property.)

5.As in the Balch case considered later in this discussion, there are separate insurers on the two items and the question is which insurer should pay the loss.

As can be seen from the above, in some cases it is advantageous for the insured to treat carpeting or draperies as part of the building; in others, as contents. The lack of resolution in the policy language is therefore open to argument, especially where the question is confronted only after a loss has occurred.

Homeowners Language Unclear

The language with respect to carpeting under the ISO homeowners policies reflects the legal ambiguity concerning treatment of this property either as a part of the building or as personal property. Neither the coverage description for building or for personal property mentions carpeting. The only mention of carpeting is in the loss settlement provisions where, along with awnings (typically a building item), household appliances (building items if built in, personal property if free standing), outdoor antennas (building items if attached to the dwelling, structures if free standing), and outdoor equipment (building, structure, or personal property, depending on what kind of equipment it is), carpeting is listed separately from either building or personal property. Like personal property, it is covered for actual cash value unless otherwise endorsed, clearly limiting payment for carpet loss to its depreciated actual cash value, but leaving its status as either building or personal property unresolved.

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