Form HO 04 90: Personal Property Replacement Cost Loss Settlement
The HO 04 90, Personal Property Replacement Cost Loss Settlement endorsement, is a crucial modification to standard homeowners insurance policies (like HO 00 03, HO 00 04, HO 00 05, and HO 00 06). Its primary function is to change the valuation method for settling losses to personal property (Coverage C) from Actual Cash Value (ACV) to Replacement Cost Value (RCV). In simpler terms, if your personal belongings are damaged or destroyed by a covered peril, this endorsement ensures that the insurance payout will be based on the cost to replace the items with new, similar items, rather than their depreciated value. This can significantly impact the amount an insured receives after a loss, helping them to more fully recover and replace their possessions.
Classes of Business It Applies To
This endorsement is specifically designed for personal lines homeowners insurance and is applicable across all states. It's relevant for any policyholder who wants to ensure they can replace their personal belongings with new items after a loss, without factoring in depreciation. This includes:
- Homeowners: Occupying single-family homes, townhouses, or other similar dwellings.
- Renters (with HO 00 04): Insuring their personal property within a rented apartment, house, or condominium.
- Condominium Unit Owners (with HO 00 06): Covering their personal property within their condo unit.
Real-world example: Imagine a homeowner purchased a new living room set five years ago for $5,000. A fire damages the furniture. Without the HO 04 90, the insurance settlement would be based on the ACV, which might only be $2,500 due to depreciation. With the HO 04 90, the settlement would be closer to the current cost of purchasing a comparable new living room set, say $5,500 (minus the deductible).
Special Considerations
There are important aspects to consider when adding the HO 04 90 endorsement:
- Property Not Eligible: Certain types of property are typically excluded from RCV settlement, even with this endorsement. These often include antiques, fine arts, memorabilia, items whose value is derived from age or history, and property not maintained in good working order or that is obsolete. These items will likely still be settled at ACV.
- Loss Settlement Procedure: The insurer will typically pay the lesser of: the replacement cost at the time of loss (without depreciation), the full cost of repair, the Coverage C limit, any applicable special limits within the policy, or the limit for specifically scheduled items.
- Requirement to Repair or Replace: In many cases, especially for losses exceeding a certain threshold (e.g., $500 or $1,000, which was increased in a 2022 ISO update), the insurance company may initially pay the ACV of the damaged property. The remaining amount, up to the RCV, is then paid once the insured actually repairs or replaces the items. The insured usually has a specific timeframe (e.g., 180 days from the loss) to notify the insurer of their intent to claim the RCV.
- Interaction with Scheduled Personal Property: If items like jewelry, furs, cameras, musical instruments, silverware, or golfer's equipment are separately described and specifically insured (e.g., on a scheduled personal property endorsement like the HO 04 61), the HO 04 90 can extend RCV to these items as well, up to their scheduled limit. However, if property is subject to an "agreed value" loss settlement on another endorsement, RCV from HO 04 90 might not apply.
- Not a Substitute for "Open Perils" Coverage: The HO 04 90 changes the loss settlement basis but doesn't expand the covered perils for personal property unless the underlying policy or another endorsement (like a Special Personal Property endorsement) provides "open perils" or "all-risk" coverage for contents.
Real-world example: An insured has a 10-year-old television that is destroyed in a covered loss. The TV originally cost $1,000, its ACV is now $150, and a comparable new TV costs $800. With the HO 04 90, the insurer might initially pay $150. Once the insured buys a new TV for $800 and provides proof of purchase, the insurer would pay the additional $650 (less any applicable deductible).
Key Information for Agents and Underwriters
- Pricing: Adding the HO 04 90 endorsement will result in an additional premium, as it provides broader coverage than standard ACV settlement.
- Risk Assessment: Underwriters should consider that this endorsement increases the potential payout for personal property claims. While generally available for most homeowners forms (except typically the HO 00 08 Modified Coverage Form), some insurers might have specific underwriting guidelines, such as requiring a certain percentage increase in Coverage C limits or a higher minimum amount of insurance for forms like the HO 00 04 (Contents Broad Form) and HO 00 06 (Unit-Owners Form).
- Coverage Gaps: Agents should clearly explain the limitations, especially regarding property not eligible for RCV and the process for claiming full replacement cost (i.e., the need to actually replace the property). It's also important to address any special limits of liability that still apply to certain categories of personal property (e.g., jewelry, firearms, silverware) even with the RCV endorsement; the HO 04 90 does not typically remove these underlying policy limits. If higher limits are needed for such items, a separate scheduled personal property endorsement (e.g., HO 04 61) should be considered.
- Underwriting Guidelines: Companies will have their own rules regarding the availability of this endorsement. For instance, it's a key feature that distinguishes the newer HO 00 14 Contents Comprehensive Form (which includes RCV for personal property automatically) from the traditional HO 00 04 (which requires the HO 04 90 to get RCV).
- Threshold for RCV without Replacement: Recent ISO updates (effective around March 2022) increased the threshold for personal property losses where RCV may be paid even if the property isn't replaced. If the HO 04 90 is attached, this limit increased from $500 to $1,000 for personal property.
Real-world example for underwriters: An underwriter reviewing an application for an HO 00 04 (renter's policy) with the HO 04 90 requested might scrutinize the Coverage C limit to ensure it's adequate, considering the increased payout potential. They might also check if the insured has a high concentration of valuable items that would be better covered under a scheduled personal property endorsement to avoid misunderstandings about special limits at the time of a claim.