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3. HO-00-03

Form HO 00 03: Homeowners 3 - Special Form

The Homeowners 3 - Special Form (HO 00 03) is one of the most common homeowners insurance policies in the United States. Its primary function is to provide a broad range of property and liability coverage for owner-occupants of one- to four-family dwellings. The HO 00 03 offers "open perils" (often called "all-risk") coverage for the dwelling (Coverage A) and other structures (Coverage B), meaning these structures are covered for all direct physical losses except those specifically excluded in the policy. Personal property (Coverage C) is covered on a "named perils" basis, meaning it's only protected against losses caused by perils specifically listed in the policy. The form also includes personal liability coverage (Coverage E) and medical payments to others (Coverage F).

Classes of Business

The HO 00 03 is designed for individuals and families who own and occupy their homes. This typically includes:

• Owner-occupants of single-family homes: This is the most common scenario. For example, a family living in a suburban house would likely have an HO 00 03 policy.
• Owner-occupants of two-, three-, or four-family dwellings: As long as the named insured owns and occupies one of the units in a multi-family dwelling (up to four units), they are eligible for this form. For instance, someone who owns a duplex and lives in one unit while renting out the other could use this policy.
• Dwellings under construction: If the named insured intends to occupy the dwelling once it's completed, an HO 00 03 can be issued. For example, a person building their dream home can secure this coverage during the construction phase.
• Homes purchased under long-term installment contracts: Individuals buying a home through a long-term contract, even without holding the legal title yet, are eligible.
• Life estate arrangements: Those occupying a dwelling under a life estate arrangement can also be covered.

It's important to note that this form is generally not intended for dwellings on farm premises or for owners who do not occupy the dwelling (e.g., rental properties exclusively occupied by tenants). For tenant-occupied dwellings, a Dwelling Policy (like a DP-3) would be more appropriate for the landlord, and renters insurance (HO 00 04) for the tenant.

Special Considerations

Several important considerations apply when using the HO 00 03 form:

• Open Perils for Dwelling vs. Named Perils for Personal Property: This is a crucial distinction. While the structure of the home has broad protection, personal belongings are only covered for specific perils listed in the policy (e.g., fire, theft, vandalism). Agents should explain this difference clearly to clients.
• Personal Property - Actual Cash Value (ACV) vs. Replacement Cost Value (RCV): Unless endorsed otherwise, personal property losses are typically settled on an Actual Cash Value (ACV) basis, which accounts for depreciation. Many insurers offer an endorsement (like the HO 04 90) to provide Replacement Cost Value (RCV) for personal property, which is generally recommended.
• Special Limits of Liability: The policy contains specific, often lower, limits for certain categories of personal property, such as money, securities, jewelry, firearms, and watercraft. For example, there's often a $200 limit on money and a $1,500 limit for theft of jewelry. Clients with high-value items in these categories may need to schedule them separately or obtain additional coverage.
• Ordinance or Law Coverage: The base HO 00 03 includes a limited amount of coverage (typically 10% of Coverage A) for the increased costs to comply with ordinances or laws when repairing or rebuilding after a covered loss. This may be insufficient, especially for older homes. The HO 04 77 endorsement can increase this coverage.
• Eligibility Requirements: Insurers have specific underwriting guidelines. For example, a home may need to be insured for at least 80% to 100% of its replacement cost to qualify for replacement cost loss settlement on the dwelling. Some insurers may have restrictions based on the age of the home's systems (roof, wiring, heating) or the presence of certain risks like aggressive animals or certain business activities on the premises.
• Students Away at College: A student enrolled full-time in school who was a resident of the household before moving out to attend school may be considered an "insured" under their parents' HO 00 03, subject to age limits (typically under 24 if a relative, or under 21 if in the insured's care). However, coverage for their personal property at their school residence is usually limited to 10% of the Coverage C limit or $1,000, whichever is greater. If a student is no longer full-time or exceeds the age limit, they may need their own HO 00 04 (renters) policy.
• Business Pursuits: The HO 00 03 provides very limited coverage for business activities conducted on the residence premises. Liability arising from most business activities is excluded. Clients with home-based businesses will likely need specific endorsements or a separate business insurance policy.
• Relation to HO DS 03: The HO DS 03 is likely a state-specific version or a similar form with minor variations, but the core coverages and principles of the HO 00 03 generally apply. Insurance forms can be adapted by individual states or insurers.

Key Information for Agents and Underwriters

• Risk Assessment: Underwriters will carefully evaluate the property's characteristics, including construction type (some, like log or dome homes, may be ineligible or require special review), age and condition of the roof, heating, plumbing, and electrical systems, occupancy (must be owner-occupied as a primary residence for many standard programs), and any unique hazards like swimming pools or trampolines. Prior loss history and insurance history (lapses in coverage can be an issue) are also key factors.
• Pricing: Premiums are influenced by the Coverage A (dwelling) limit, chosen deductibles, location (protection class, proximity to coast, etc.), construction type, age of home, claims history, and any endorsements added. Higher deductibles will lower the premium. Inflation guard endorsements (e.g., HO 04 46) are often mandatory to help keep coverage limits aligned with rising construction costs.
• Coverage Gaps:
  • Flood and Earthquake: These perils are standard exclusions. Separate policies or endorsements are needed.
  • Personal Property at "Open Peril": The base HO 00 03 covers personal property for named perils. Endorsing to an open perils basis for contents (often via an endorsement like the HO 00 15, or by upgrading to an HO 00 05 form) provides broader protection.
  • Sewer Backup/Water Backup: Often excluded or limited; specific endorsements are usually available to add this coverage.
  • High-Value Items: As mentioned, special limits apply. Agents must inquire about jewelry, art, collectibles, etc., to ensure adequate coverage, often through scheduling.
  • Home-Sharing: Standard homeowners policies may have limited or no coverage for home-sharing activities (e.g., renting out a room through Airbnb). Specific endorsements may be required.
• Underwriting Guidelines Examples:
  • A dwelling must typically be insured to at least 80% of its replacement cost for RCV settlement on the building to apply without penalty. Some insurers may require 100%.
  • Properties with certain animals (e.g., those with a bite history) may be ineligible.
  • Commercial farming or significant business operations on the premises are generally not permitted under a standard HO 00 03.
  • Unoccupied properties (beyond a certain period, e.g., 60-90 days) may have coverage limitations or become ineligible. Seasonal use may be acceptable under certain conditions, but extended unoccupancy often requires a different policy type or endorsement.
  • Some insurers may surcharge or decline coverage for homes with older roofs, wiring, or heating systems if not updated.
• Form Revisions: The ISO (Insurance Services Office) periodically updates its forms. Agents and underwriters must stay current with the latest editions (e.g., the 03 22 edition) as definitions, coverages, and exclusions can change. For example, the definition of "insured location" or "motor vehicle liability" might be refined.

The HO 00 03, while comprehensive for typical homeowners, is not a one-size-fits-all solution. A thorough understanding of its provisions, limitations, and available endorsements is crucial for insurance professionals to properly advise clients and underwrite risks effectively.