Insurance product development is not always an exact science, but it is an exacting one.
If someone asked you what is new in the revised AAIS Homeowners Program, you could hand them the 66 pages detailing changes to forms and endorsements prepared as filing memos.
That’s 66 single-spaced pages in 10-point type, describing every addition, deletion, and alteration in the fifth version of the program’s policy forms.
That would hardly make for compelling reading, but it would suggest a fundamental truth about this revision: Its value emerges from exacting attention to a web of interconnected details, rather than from any bold new departures.
To be sure, the AAIS Homeowners Program is the nation’s first standardized program to provide optional endorsements for adding equipment breakdown coverage to a homeowners policy.
That came about from an initiative of AAIS and The Hartford Steam Boiler Inspection and Insurance Company, filed around the same time as the latest comprehensive revision of the program’s forms and manual.
(The equipment breakdown filing was reported in the Winter 2007 edition of Viewpoint; that article can be found in the Viewpoint section of www.AAISonline.com.)
Otherwise, the latest AAIS Homeowners revision is not characterized by an expansion or contraction of coverage, but by a balanced attention to detail.
Some coverages may be slightly broadened, others slightly restricted, but the overall effect is to refine policy provisions so they provide up-to-date coverage while avoiding unintended exposures.
The value of the revision is best demonstrated by how its treatment of details affects coverage in key areas. Here we summarize the impact of those refinements in policy provisions, incorporating selections from comments by Susan Luecke, AAIS assistant vice president of personal lines.
Sue’s comments can be heard in their entirety in audio files available at www.AAISonline.com.
Several provisions in the revised AAIS Homeowners base forms address growing concern about the increasing frequency and severity of losses arising from mold and water damage.
Through a carefully crafted interplay of different policy provisions, the revised base forms seek to preserve standard coverage for truly accidental discharges of water or steam, but make it clear in several places that there is no intent to cover continuous or repeated seepage or other presence of water, humidity, moisture, or vapor.
Also, the new base forms include an expanded exclusion for fungi (mold) damage that does not result from a covered peril; an endorsement is available for limiting coverage for mold damage that arises from a covered peril.
In this way, the AAIS Homeowners revisions respond to a surge in water-related claims and litigation by preserving the homeowners policy as protection against fortuitous loss, and preventing its abuse as a source of funding for routine home maintenance.
“On the one hand, we’ve tried to preserve coverage for certain genuinely accidental losses,” says Luecke. “On the other hand, we seek to avoid coverage for what I would consider to be maintenance responsibilities.
“In sum, the purpose of these refinements is to preserve the basic intent of homeowners policies.
Thanks to Internet communications, households are publishing nowadays--sometimes with damaging effects
on individuals who are libeled or
slandered, or whose right to privacy is
violated by the unlawful dissemination of their personal information.
This new capability in the hands of individuals has increased the exposure of households and personal lines insurers to personal injury claims.
The 2007 Homeowners revision introduces several changes in wording in the optional endorsement for providing personal injury coverage.
First off, the definition of “personal injury” is modified to explicitly include injury that arises from electronic publication of material that slanders or libels a person or organization, disparages the products or services of a person or organization, or violates another’s right to privacy.
With coverage for electronic publication established, the revised AAIS endorsement then clarifies the extent of coverage for electronic publication by implementing a new exclusion that includes a key exception.
The new provision generally excludes coverage for personal injury arising from “chat rooms,” “bulletin boards,” “gripe sites,” and other electronic forums an insured hosts or controls. However, the new provision contains an exception that preserves coverage for personal injury arising from content posted or provided by an insured.
“In a general sense, the exclusion and exception are crafted to preserve coverage for an insured’s own comments, but not for his or her potential liabilities as a publisher of the comments and ideas of others,” says Luecke.
The new AAIS personal injury endorsement also states that the personal injury limit is the most the carrier will pay for all personal injury to any one person or organization, regardless of the number of claims brought or the number of offenses committed during the policy period.
Says Luecke: “This language protects the carrier from being exposed to paying coverage limits multiple times for personal injury offenses claimed by the same party.”
While preserving traditional exclusions and restrictions for business activities, the revised AAIS Homeowners forms introduce refinements that preserve coverage for certain situations that may be related to business but are also personal in nature.
For example, the property exclusion for “related private structures” used for business purposes is now expressed in more detail, explicitly excluding structures used for the direction or operation of a business, as well as those used to store business property.
The exclusion includes a new provision, however, that would leave coverage in place for a garage where a company car is parked. That situation, while never an issue under AAIS forms, has been a concern of agent groups regarding other industry forms.
Regarding liability coverage, the definition of “business” has been updated to maintain coverage under specific limitations for care services, volunteer activities, and incidental activities for which the insured earns little or no compensation.
“Exceptions [to the business activities exclusion] preserve liability coverage for activities often considered personal in nature, even if an insured receives some compensation,” says Luecke.
Also, incidental liability coverage is explicitly provided for part-time or occasional business activities (e.g., a lawn mowing business) of a self-employed insured who is under age 21 and has no employees.
As in other areas, however, some of the business-related modifications are designed to limit the exposure of insurers.
For example, the definition of “business” now includes “occasional” as well as part-time and full-time work, thus expanding the potential application of exclusions for business activities.
“We have expanded the definition of a business to include occasional activities related to a trade, occupation, or profession, in addition to full- and part-time work,” Luecke says. “This change slightly expands the scope of the business activities exclusion.”
The revised AAIS Homeowners forms include important refinements addressing the ever-evolving use of motorized vehicles by households.
One new provision provides built-in liability coverage for certain battery-powered vehicles that travel 15 miles per hour or less, including those owned by the insured and used away from the insured location.
“The kiddie car provision was drafted in response to comments from our personal lines advisory committee,” Luecke notes. “Members of that group . . . . told us that a strict reading of standard liability forms might preclude coverage for injury arising from children’s toys that happen to be vehicles.
“The kiddie car provision . . . is intended to provide automatic coverage to slow-moving toy vehicles generally used by younger children, while still protecting insurers from exposure to the growing number of miniature but high-powered motorized vehicles you see today.”
Also, provisions have been added that expand the number of situations in which liability coverage will apply when golf carts are used other than on a golf course.
The revised AAIS Homeowners forms include new provisions addressing some of the changes that have occurred within American families.
For example, the definition of “insured” has been modified to include certain members of a household who have moved out to attend school, but who are still financially dependent on the named insured.
Also, a new endorsement option allows personal property and personal liability coverage to be extended to a relative who resides in an assisted living facility.
The revision retains the endorsement option, introduced to the industry by AAIS in 1996, that allows carriers to provide personal property and liability coverage to a member of a household, such as a live-in boyfriend or girlfriend, who may not fall under the standard definition of insured.
“In all, the enhancements to the AAIS Homeowners Program continue the evolution of homeowners programs to address transitional living arrangements,” Luecke says.
A similar interplay of different provisions protects carriers from unintended exposure for structural impairment, another threat arising from aggressive litigation.
The approach implemented in the revised AAIS Homeowners Program combines a general exclusion for collapse and structural impairment with a tightly defined incidental coverage for collapse to make it clear that coverage applies only to structures that have actually fallen down under certain circumstances.
As with the AAIS approach to water damage, the structure and wording of provisions related to collapse seek to protect insurers from claimants and trial attorneys who argue, in essence, that homeowners insurers should pay for home maintenance.
The revised AAIS Homeowners forms introduce some new incidental coverages, including:
- Built-in limited coverage for an insured’s share of an insurance deductible levied by a homeowners or condominium association, an AAIS innovation that is distinct from standard loss assessment coverage;
- Built-in coverage for loss to personal property in rental units at the described location (furnishings, carpets, etc.); and
- Limited built-in property coverage (in some forms) for loss caused by the discharge, dispersal, etc., of liquid fuel from a heating or air-conditioning system, water heater, ordomestic appliance.
At the same time, the AAIS Homeowners Program retains an exclusion for pollution liability that, along with a similar exclusion for lead liability, are program features not available in all standard homeowners programs.
Similar examples of value-added clarity are evident throughout the new AAIS Homeowners forms. In all, these demonstrate how AAIS product development specialists “dot the i’s and cross the t’s” for AAIS members, allowing them to compete in markets all across the U.S.
That service doesn’t end when the programs are filed. Users of the AAIS programs say that the service that follows is equally valuable to their homeowners business.
“AAIS helped us convert our old homeowners program to the AAIS forms, providing us with side-by-side comparisons in a thorough, efficient, and timely manner,” says Kenneth Stover, executive vice president of Western National Insurance Group, Edina, Minn. “AAIS’s knowledgeable staff members are always timely in responding to any calls regarding our affiliation or forms.”
“I have worked with the AAIS Homeowners Program for years,” adds John DiStefano, assistant vice president and portfolio manager for Preferred Mutual Ins. Co., New Berlin, N.Y. “ AAIS has been most helpful in providing training materials and working with us.”
About 200 U.S. property/casualty companies use the AAIS Homeowners Program as their product base. That demonstrates why the program is one every carrier should consider among its product options.
The AAIS Homeowners 
