Homeowners Myths, Business Income and Street Racing

One of the most common homeowners myths involves rebuilding a destroyed home at another site. This question seems to arise several times a year in the VU’s Ask an Expert service. What happens is the homeowner decides, for whatever reason, that he will rebuild the house at another location. Then he’s told by the insurer that the policy doesn’t pay replacement cost unless the home is rebuilt on the same location.

For the record, there is nothing in the ISO HO-3 form that requires rebuilding on the same location. The policy just says that the insurer will not pay more than it would have paid if the home had been built on the same location. The ISO HO2000 program revised this language to make it absolutely clear that this is the way the claim is adjusted.

Another myth is that the home must be replaced within 180 days in order to receive replacement cost coverage. While some proprietary company forms may require that, the ISO HO-3 only requires that the insured advise the insurer of their intention to replace within 180 days.

These issues are discussed in detail on the Big “I” Virtual University.

An agent asks our Ask an Expert service, “We have a client that carries business income coverage. The question came up as to whether mortgage payments were part of the continuing expenses of an idle business. I seem to recall that I learned somewhere that only the interest part of the monthly payment was a covered expense, not the principal part. I would appreciate any help that you could provide.”

While this question sounds simple enough on the surface, our faculty found it to be more complicated in reality. Everyone agreed that the interest was, indeed, a continuing expense. However, as one faculty member professed, the mortgage principal probably is immaterial if the business was breaking even, would be covered if the business was making a profit and could actually reduce coverage if the business was operating at a loss.

Visit the VU to review complete and extensive analysis.

The ISO Business Auto Policy excludes losses arising from an auto “used in any professional or organized racing or demolition contest or stunting activity, or while practicing for such contest or activity.”

In one claim reported via the Ask an Expert service, a business owner insured his son’s auto on the business policy. While street racing, the son had an accident that seriously injured him and killed his passenger. There was no coverage for the resulting lawsuit by the passenger’s family.

So, what if coverage had been written on an ISO Personal Auto Policy…would the racing exclusion in that policy apply as well? In short, no. Find out why.