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TEXAS DEPARTMENT OF INSURANCE EXEMPT FILING NOTIFICATION PURSUANT TO THE INSURANCE CODE CHAPTER 5, SUBCHAPTER L, ARTICLE 5.96

The Commissioner of Insurance has adopted three new residential property policy forms which include form no. FP-7955 TX (homeowners policy form), form no. FP-7954 TX (renters policy), and form no. FP-7956 TX (condominium unitowners policy) filed by State Farm Fire and Casualty Company, State Farm General Insurance Company, and State Farm Lloyds (collectively referred to as State Farm) and further has adopted thirty-six new endorsements that may be attached to the new residential property policy forms for use in the State of Texas.

The Commissioner has jurisdiction over this matter pursuant to Texas Insurance Code Article 5.35. Article 5.35(b) provides in pertinent part that the Commissioner may adopt policy forms and endorsements of a national insurer, which is defined as an insurer subject to that article that, either directly or together with its affiliates as part of an insurance holding company system as defined by Article 21.49-1, is licensed to do business and write the kinds of insurance that are subject to Texas Insurance Code Chapter 5, Subchapter C (fire and allied lines) in 26 or more states and maintains minimum annual direct written premiums for residential property insurance of $750 million in the aggregate for all states. Based on information furnished to the department, State Farm is a national insurer under this section and is thus authorized to file its policies and endorsements with the Texas Department of Insurance to be considered by the Commissioner for adoption.

Article 5.35(g) establishes the standards by which a policy form or endorsement filed under that statute will be judged. That subsection provides, in pertinent part, that "The Commissioner may disapprove a policy form or endorsement filed under this article, or withdraw any previous approval thereof, if the policy form or endorsement:

(A) violates or does not comply with the Insurance Code, or any valid rule related thereto duly adopted by the Commissioner, or is otherwise contrary to law; or

(B) contains provisions or has any titles or headings which are unjust, encourage misrepresentation, are deceptive, or violate public policy."

State Farm's original petition on this matter, filed on January 21, 1997, requested the adoption of a new Texas homeowners policy. State Farm subsequently made several modifications to the homeowners policy, as originally filed, as a result of discussions with Department staff. On March 15, 2001, State Farm filed an amended petition in which it refiled its new homeowners policy with the modifications that had been agreed upon by State Farm and staff, and also filed a renters policy, condominium unitowners policy, and thirty-three endorsements as additional items to be considered by the Commissioner. On June 12, 2001, State Farm further amended its petition by withdrawing endorsement no. FE-7424.1 (Exclusion Endorsement) and substituting in its place endorsement no. FE-8716 (Exclusion Endorsement). A hearing on the policy forms and endorsements filed with the March 15, 2001, petition, as amended, was originally set for July 24, 2001. Notice of the hearing was published in the June 22, 2001, issue of the Texas Register (26 TexReg 4739). At the request of State Farm, the Department postponed the public hearing, with notice of the postponement published in the August 3, 2001, issue of the Texas Register (26 TexReg 5857). On November 16, 2001, State Farm filed another amendment to the petition in which it refiled its new homeowners policy, renters policy, condominium unitowners policy, and thirty-three endorsements with certain modifications along with two new Fungus Exclusion Endorsements and a Fungus Limited Coverage Endorsement, for a total of thirty-six endorsements to be considered by the Commissioner. Potential action on these policies and endorsements was noticed in the Texas Register (27 TexReg 289) on January 4, 2002 and a public hearing to solicit comments was held on February 4, 2002.

After review of State Farm's filings and supporting documentation and other information, public comments, and recommendations by Texas Department of Insurance staff, the Commissioner finds that the policy forms, endorsements, and the agreed-upon conditions as detailed herein meet the requirements of Article 5.35, and should be adopted subject to the following provision. Article 5.35 requires that a filed policy form or endorsement shall not contain provisions that are unjust, encourage misrepresentation, are deceptive, or violate public policy. Under these circumstances, as noted earlier, the Commissioner may disapprove a policy form or endorsement, or withdraw any previous approval of a form or endorsement. The Commissioner believes that there is a reasonable expectation on the part of insureds that the offer of a new policy with less coverage would be at a lower cost than a policy offered by the same company with more coverage, and that if this were not the case the filing would not come within the standards of Article 5.35, including the public policy requirement. This is especially true as the current insurance market transitions from a single, prescribed policy to individually filed policies. Accordingly, the Commissioner's adoption of State Farm's filing is predicated on information and representations provided to the Department by State Farm, including the preliminary determination that insureds purchasing the new basic policy forms and endorsements can reduce their homeowners premium from 7% to 40% from the amount they otherwise would have paid for the basic HO-B, depending upon geographic location and coverage selection. The Commissioner's adoption is also predicated on the requirement in this order, which State Farm has agreed to, that State Farm file its initial rates and any subsequent rate changes/reductions with the Department for a two year period beginning on the date the policies are first sold, in order that the Department may monitor impacts related to the policy form adoption, including compliance with Article 5.35.

I. State Farm Homeowners Policy. The following is a general description of the coverage provided by the new State Farm homeowners policy that is adopted by the Commissioner pursuant to Article 5.35 (b).

A. Section 1-Property Coverages.

1. The policy covers the dwelling and other private structures on the premises against the risk of direct physical loss, with certain exceptions.

2. It covers personal property on and away from the premises against losses by fire or lightning, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicular impact, smoke, vandalism or malicious mischief, and theft.

3. It provides loss of use which covers additional living expenses when the residence becomes uninhabitable and fair rental value when part of the premises is rented to others.

B. Section 2-Liability Coverages.

1. Coverage L-Personal Liability. The policy covers payment on behalf of the insured of all sums, up to the stipulated limit, which the insured is legally liable to pay as damages because of bodily injury or property damage arising out of the residence premises or personal activities.

2. Coverage M-Medical Payments to Others. The policy covers medical and related expenses, subject to the stipulated limit, arising out of accidents to persons other than the insured and residents of the premises.

3. Additional Coverages. Additional coverage is provided for claim expenses, first aid expenses, and damage to property of others.

II. State Farm Condominium Unitowners Policy. This policy for condominium unitowners covers items of real property which are the insured's responsibility under the governing rules of a condominium association. This policy covers personal property on and away from the premises against losses by fire or lightning, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicular impact, smoke, vandalism or malicious mischief, and theft. This policy also contains loss of use, additional coverages, and liability coverage provisions that are the same as those described for the State Farm homeowners policy.

III. State Farm Renters Policy. This is a tenants policy that covers personal property on and away from the premises against losses by fire or lightning, windstorm or hail, explosion, riot or civil commotion, aircraft, vehicular impact, smoke, vandalism or malicious mischief, and theft. This policy also contains loss of use, additional coverages, and liability coverage provisions that are the same as those described for the State Farm homeowners policy.

IV. Comparison of the State Farm Policies to the Currently Prescribed Texas Homeowners Policy-Form B (HO-B). The HO-B has traditionally been the predominant policy form issued in Texas for owner occupied dwellings. In the course of the Department's review of State Farm's homeowners, renters, and condominium unitowners policies, several differences were noted in the coverage provided in the HO-B and that provided in the State Farm policy forms. Since the renters policy contains the same coverages as the homeowners policy (except that the renters policy does not provide the dwelling coverage), and since the condominium unitowners policy also contains the same coverages as the homeowners policy (except that the dwelling coverage is much more limited), the restrictions and enhancements in coverage will be discussed in terms of a comparison between the State Farm homeowners policy and the HO-B. However, it should be noted that most of the comparisons of coverage also apply to the renters and condominium unitowners policies.

V. Restrictions In Coverage. The following is a list of some of the major restrictions in coverage that are contained in the State Farm homeowners policy as compared to the existing HO-B. This list is not intended to cover every restriction in coverage that is contained in the State Farm policy forms. More detailed coverage information is contained in a side by side comparison of the State Farm homeowners policy and the HO-B, which was part of the record in the hearing on State Farm's petition, and which is available from the Department upon request.

A. Coverage for Boats, Boat Trailers, and Other Trailers.

The State Farm policy provides up to $1,000 in coverage for boats, boat trailers, and other trailers not used with watercraft for losses that occur on and off premises for all losses insured. (See Section 1-Coverages, Coverage B-Personal Property, Special Limits of Liability, paragraphs d. and e.) The State Farm policy provides theft coverage for boats, boat trailers, and other trailers if the theft occurs on the residence premises; however, if the theft occurs off of the residence premises, theft coverage is excluded. (See Section 1-Losses Insured, Coverage B-Personal Property, paragraphs 9.c.(2) and (3)) The State Farm policy provides windstorm and hail coverage for boats and their trailers only if they are inside a fully enclosed building. (See Section 1-Losses Insured, Coverage B-Personal Property, paragraph 2.) The HO-B provides coverage up to the limits of liability that apply to Coverage B (Personal Property) for boats and boat trailers while located on land on the residence premises for all perils insured against. Additionally, the HO-B provides coverage up to the limits of liability that apply to Coverage B (Personal Property) for trailers designed for use principally off public roads (e.g., travel trailers) whether on or off premises. (See Section 1-Property Coverage, Coverage B (Personal Property), Property Not Covered, paragraphs 4. and 6.).

B. Coverage for Firearms.

The State Farm policy limits the coverage for firearms to losses by the peril of theft with a maximum limit of liability of $2,500. (See Section 1-Coverages, Coverage B-Personal Property, 1. Property Covered, paragraph g.) The HO-B provides coverage for firearms to the extent described under the Perils Insured Against section of the policy, including the peril of theft, up to the limits of liability that apply to Coverage B (Personal Property.).

C. Coverage for Goldware and Silverware.

The State Farm policy limits the coverage for goldware and silverware to losses by the peril of theft with a maximum limit of liability of $2,500. (See Section 1-Coverages, Coverage B-Personal Property, 1. Property Covered, paragraph h.) The HO-B provides coverage for goldware and silverware to the extent described under the Perils Insured Against section of the policy, including the peril of theft, up to the limits of liability that apply to Coverage B (Personal Property.).

D. Coverage for Golf Carts.

The State Farm policy only covers golf carts if they are used to service the residence premises or while used for golfing purposes. (See Section 1-Coverages, Coverage B-Personal Property, 2. Property Not Covered, paragraph c.) The HO-B provides coverage for golf carts up to the limits of liability that apply to Coverage B (Personal Property) to the extent described under the Perils Insured Against section of the policy. The golf cart coverage provided in the HO-B is not limited to golf carts that are used to service the residence or while used for golfing purposes, (See Section 1-Property Coverage, Coverage B (Personal Property) Property Not Covered, paragraph 3.c.).

E. Coverage for Tree Debris Removal.

The State Farm policy limits the coverage for the removal of debris from a fallen tree to $500. (See Section 1-Coverages, Section 1-Additional Coverages, paragraph 1.) The HO-B provides coverage for removal of debris from a fallen tree to the extent described under the Extensions of Coverage section of the policy up to the limits of liability that apply to the damaged property. (See Extensions of Coverage, paragraph 1.).

F. Coverage for Water Damage.

1. The State Farm policy specifies that an accidental discharge or overflow of water from a plumbing system, heating or air conditioning system, or household appliance must be "sudden" before there is water damage coverage under the policy. (See Section 1-Losses Insured, paragraph 12.) The HO-B provides the same water damage coverage that is specified in the State Farm policy, but also provides coverage for water damage from repeated and continuous seepage or leakage of water or steam from a plumbing system, heating or air conditioning system, or household appliance which occurs over a period of time. (See Section 1-Perils Insured Against, paragraph 9.)

2. The State Farm policy does not cover a loss caused by water or sewage from outside the residence premises that backs up or overflows from a sewer, drain, or sump pump. (See Section 1-Losses Insured, paragraph 12.) The HO-B does not exclude damage to property covered under Coverage A-Dwelling for a loss caused by back up or overflow from a sewer, drain, or sump pump of sewage or water, even if it is from outside the residence premises. Property covered under Coverage B-Personal Property is specifically insured for loss caused by accidental discharge, leakage, or overflow of water or steam from within a plumbing system, heating or air conditioning system, or household appliance which may include a loss caused by water or sewage from outside the residence premises that backs up or overflows from a sewer, drain, or sump pump. (See Section 1-Perils Insured Against, Coverage B-Personal Property, paragraph 9.)

3. State Farm agrees to extend the coverage for water damage in the same manner as provided in the HO-B that is specified in Commissioner's Order No. 01-1105, concerning Mold, Fungi, or Other Microbes, to its policyholders. Specifically, State Farm extends coverage for reasonable and necessary repair or replacement of property physically damaged by a covered water loss which damage shall include mold, fungi, or other microbes, including a water loss that involves hidden and undetected damage, and where the insured has reported the loss within thirty (30) days of its detection.

G. State Farm Policy Exclusions.

1. The State Farm policy excludes loss from freezing, thawing, pressure or weight of water or ice to a swimming pool, hot tub or spa. (See Section 1-Losses Not Insured, paragraph 1. c.) The HO-B does not contain this exclusion.

2. The State Farm policy excludes loss from vandalism or malicious mischief or breakage of glass if the dwelling is vacant for more than 30 days immediately before the loss. (See Section 1-Losses Not Insured, paragraph 1. e.) The HO-B provides coverage for all perils insured against for up to 60 days of vacancy. (See Section 1-Conditions, paragraph 13.)

3. The State Farm policy restates under "Losses Not Insured" that a loss resulting from continuous or repeated seepage or leakage of water or steam is excluded. (See Section 1-Losses Not Insured, paragraph 1. f.) The HO-B does not contain this exclusion.

4 The State Farm policy excludes losses resulting from pressure or presence of tree, shrub or plant roots. (See Section 1-Losses Not Insured, paragraph 1. n.) The HO-B does not contain this exclusion.

5. The State Farm policy restates under "Losses Not Insured" that a loss resulting from backup or overflow from a sewer, drain, or sump pump of water or sewage from outside the residence is excluded. (See Section 1-Losses Not Insured, paragraph 2. c. (2)) The HO-B does not contain this exclusion.

6. The State Farm policy excludes losses consisting of defect, weakness, inadequacy, fault or unsoundness in planning, zoning, development, surveying, siting, design, specifications, workmanship, construction, grading, compaction, materials used in construction or repair, or maintenance of any property whether on or off the residence premises. However, any resulting loss from the items specified above is insured unless the resulting loss is itself a loss not insured. (See Section 1-Losses Not Insured, paragraph 3. b.) The HO-B does not contain this exclusion.

7. The State Farm policy excludes coverage for settling, cracking, shrinking, bulging, or expansion of pavements, patios, walls, floors, roofs, ceilings, or foundations of the dwelling. (See Section 1-Losses Not Insured, paragraphs 1.l.) The HO-B provides foundation coverage caused by seepage or leakage of water or steam from within a plumbing, heating, air conditioning, or automatic fire protective sprinkler system. (See Section 1-Perils Insured Against, paragraph 9. and Section 1-Exclusions paragraph 1. h.)

VI. Coverage Enhancements. The following is a list of some of the areas where the State Farm homeowners policy provides coverage that is broader than the coverage provided in the HO-B. More detailed coverage information is contained in a side by side comparison of the State Farm homeowners policy and the HO-B, which was part of the record in the hearing on State Farm's petition, and which is available from the Department upon request.

A. Coverage of Personal Property Off Premises.

The State Farm policy provides coverage for personal property away from the residence premises up to the full limit of Coverage B. There is an exception to this coverage that limits personal property coverage to the greater of $1000 or 10% of Coverage B, if the property is usually situated at an insured's residence, other than the residence premises. (See Section 1-Coverages, Coverage B-Personal Property, paragraph 1.) The HO-B limits coverage on losses to personal property located away from the residence premises to the greater of $1000 or 10% of Coverage B. (See Section 1-Property Coverage, Coverage B (Personal Property), paragraph 2.) The HO-B excludes theft loss if the personal property is at any other residence owned by, rented to, or occupied by an insured, except while an insured is temporarily living there. (See Section 1-Exclusions, paragraph 1. d. (1).)

B. Special Limits of Liability.

1. The State Farm policy provides a $200 limit of liability for losses of money. (See Section 1-Coverages, Coverage B-Personal Property, Special Limits of Liability, paragraph a.) The HO-B provides a $100 limit of liability for losses of money. (See Section 1-Property Coverage, Coverage B (Personal Property), Special Limits of Liability, paragraph 1.)

2. The State Farm policy provides a $1000 limit of liability for loss of securities, checks, money orders, accounts, deeds, passports, tickets, etc. (See Section 1-Coverages, Coverage B-Personal Property, Special Limits of Liability, paragraph c.) The HO-B provides a $500 limit of liability for "Bullion/Valuable Papers". (See Section 1-Property Coverage, Coverage B (Personal Property), Special Limits of Liability, paragraph 2.)

3. The State Farm policy provides a $1000 limit of liability for boats, boat trailers, and other trailers while away from the residence premises, except for the peril of theft. (See Section 1-Coverages, Coverage B-Personal Property, Special Limits of Liability, paragraphs d. and e.) The HO-B excludes coverage for boats and boat trailers while away from the residence premises. (See Section 1-Property Coverage, Property Not Covered, paragraphs 4. b. and 6.)

4. The State Farm policy provides $2,500 coverage for stamps, trading cards, and comic books. (See Section 1-Coverages, Coverage B-Personal Property, Special Limits of Liability, paragraph f.) The HO-B provides a $500 limit of liability for "Bullion/Valuable Papers". (See Section 1-Property Coverage, Coverage B (Personal Property), Special Limits of Liability, paragraph 2.)

C. Service Vehicle Coverage.

The State Farm policy covers any vehicle not licensed and used solely to service the residence premises or designed to assist the handicapped. (See Section 1-Coverages, Coverage B-Personal Property, 2. Property Not Covered, paragraph c.) The HO-B only covers vehicles which are not subject to motor vehicle registration and which are devices and equipment to assist the handicapped, power mowers, golf carts, vehicles used for recreational purposes while on the residence premises, and farm equipment not designed for use principally on public roads. (See Section 1-Property Coverage, Coverage B (Personal Property) Property Not Covered, paragraph 3.)

D. Additional Coverages.

1. The State Farm policy provides an additional 5% of the limit of the damaged property for debris removal if the property damage and debris removal exceeds the limit for the damaged property. (See Section 1-Coverages, Section 1-Additional Coverages, paragraph 1.) The HO-B's debris removal coverage is included in the limit of liability for the damaged property and does not add additional coverage. (See Section 1-Property Coverage, Coverage B (Personal Property), Extensions of Coverage, paragraph 1.)

2. The State Farm policy provides up to $500 for covered damage to any one tree, shrub or plant. (See Section 1-Coverages, Section 1-Additional Coverages, paragraph 3.) The HO-B provides up to $250 for covered damage to any one tree, shrub or plant. (See Section 1-Property Coverage, Coverage B (Personal Property), Extensions Of Coverage, paragraph 4.)

3. The State Farm policy pays up to $1000 for unauthorized use of credit cards and bank fund transfer cards. There is no deductible for this coverage. (See Section 1-Coverages, Section 1-Additional Coverages, paragraph 5.) The HO-B provides a $100 limit of liability (subject to a deductible) for loss by theft or unauthorized use of bank fund transfer cards. (See Section 1-Property Coverage, Coverage B (Personal Property), Special Limits of Liability, paragraph 1.)

4. The State Farm policy extends Coverage B to the contents of a deep freeze or refrigerated units on the residence premises for loss due to power failure or mechanical failure whether the power failure is on or off premises. (See Section 1-Coverages, Section 1-Additional Coverages, paragraph 7.) The HO-B limits consequential loss to $500 if the power failure is a result of damage to any power, heating, or cooling equipment off of the residence premises that is caused by an HO-B peril. The HO-B provides coverage to property contained in a building on the residence premises due to a temperature change resulting from damage to the dwelling or equipment in the dwelling that is caused by a peril insured against. (See Section 1-Property Coverage, Coverage B (Personal Property), Extensions Of Coverage, paragraph 6.)

5. The State Farm policy provides an arson reward of $1000 for information leading to an arson conviction. (See Section 1-Coverages, Section 1-Additional Coverages, paragraph 8.) The HO-B does not provide arson reward coverage.

6. The State Farm policy provides coverage for reasonable expenses incurred to rekey exterior doors to the residence premises if the keys are stolen as part of a covered theft loss. (See Section 1-Coverages, Section 1-Additional Coverages, paragraph 11.) The HO-B does not provide similar coverage.

E. Windstorm or Hail Coverage.

The State Farm policy does not exclude windstorm or hail coverage to structures wholly or partially over water. (See Section 1-Losses Insured, Coverage B-Personal Property, paragraph 2.) The HO-B excludes loss from windstorm, hurricane and hail to structures wholly or partially over water and their contents. (See Section 1-Exclusions, paragraph 1. c. (1))

F. Policy Exclusions.

The State Farm policy pays for a loss not otherwise excluded that results from destruction of property by order of a governmental authority. (See Section I ­ Losses Not Insured, paragraph 3. a.) The HO-B excludes losses caused by the destruction of property by order of a governmental authority. However, the HO-B will cover loss caused by order of destruction ordered by a governmental authority taken at the time of a fire to prevent its spread. (See Section 1-Exclusions, paragraph 2.)

G. Conditions.

The State Farm policy excludes losses only from the perils of vandalism, malicious mischief, or breakage of glass after 30 days of vacancy. (See Section 1-Losses Not Insured, paragraph 1. e.) The HO-B suspends dwelling coverages for all perils insured against after 60 days of vacancy. (See Section 1-Conditions, paragraph 13.)

H. Loss Settlement Provisions.

The State Farm policy pays replacement cost coverage on the dwelling and other structures on the residence premises without depreciation. (See Section 1-Loss Settlement, Coverage A-Dwelling, paragraphs 1.and 2.) The HO-B's loss settlement provisions allow initial loss payment of actual cash value with the difference between actual cash value and replacement cost paid upon replacement or repair of the damaged property, if the repair or replacement is done within 365 days of the loss. An additional 180 days may be requested by the insured. (See Section 1-Conditions, paragraph 4.)

VII. State Farm Endorsements. In addition to the three residential property policy forms, the Commissioner has adopted thirty-six endorsements pursuant to Article 5.35 (b) that either add or exclude coverage. A general description of the coverage that will be provided by or excluded by the State Farm Dwelling Foundation Endorsement, Water Damage Endorsements, Fungus (Including Mold) Exclusion Endorsements, and Fungus (Including Mold) Limited Coverage Endorsement is provided.

A. Dwelling Foundation Endorsement FE-5368.

This endorsement provides coverage for settling, cracking, shrinking, bulging, or expansion of foundations, floor slab or footings that support the dwelling caused by seepage or leakage of water or steam from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system. The coverage includes the cost of tearing out and replacing any part of the building necessary to repair the system from which the water or steam escaped. The loss to the system from which the water or steam escaped is not covered. The endorsement limits coverage to 15% of the amount of insurance for Coverage A ­ Dwelling on the date of the loss. In contrast, the HO-B policy provides dwelling foundation coverage limits up to the total amount of insurance for Coverage A ­ Dwelling.

B. Water Damage Endorsements FE-5369 and FE-5393.

Water Damage Endorsement FE-5369, which may be attached to a homeowners policy, provides coverage for deterioration, wet rot, or dry rot to Coverage A ­ Dwelling and Coverage B ­ Personal Property caused by continuous or repeated seepage or leakage of water or steam from heating, air conditioning systems or automatic fire sprinkler systems, household appliances, or plumbing systems. The coverage includes the cost of tearing out and replacing any part of the building necessary to repair the system or appliance from which the water or steam escaped, but does not include the loss to the system or appliance from which the water or steam escaped. Fungus that results from a continuous or repeated seepage or leakage of water or steam from a heating, air conditioning or automatic fire sprinkler system, household appliance, or plumbing systems is excluded; however, fungus that results from a sudden discharge of water from these systems or appliances is not excluded. The endorsement contains a broad definition of "fungus" to mean any type or form of fungus, including mold, mildew, mycotoxins, spores, scents, or byproducts produced or released by fungi. Additionally, in Section 1-Losses Insured, Coverage B-Personal Property, Item 13., relating to sudden and accidental tearing asunder, cracking, burning, or bulging of a hot water heating system, air conditioning system, or fire protection sprinkler system, replaces item 13. in the policies to clarify that the coverage provided under this item is limited to the coverage specifically provided by this endorsement. Water Damage Endorsement FE-5393, which is attached to a renters or condominium unitowners policy, contains coverages that parallel those in FE-5369 described above except that the coverages are applicable only to Coverage B-Personal Property.

C. Fungus (Including Mold) Exclusion Endorsements FE-5398 and FE-5399.

Fungus (Including Mold) Exclusion Endorsement FE-5398, which will be attached to a homeowners or condominium unitowners policy, and FE-5399, which will be attached to a renters policy, are intended to exclude losses resulting from fungus. Fungus is broadly defined in these endorsements to mean any type or form of fungus including mold, mildew, mycotoxins, spores, scents, or byproducts that are produced or released by fungi. These endorsements amend Section 1-Losses Insured, items 12.d. and 13.b. to remove the word "mold" from these exceptions to coverage with the purpose of restructuring the policies to create a separate and more comprehensive fungus exclusion. These endorsements amend the Section 1-Losses Not Insured portion of the policy by adding item g. to item 2. to exclude coverage for any loss of use or delay in rebuilding, repairing or replacing covered property, including any associated cost or expense due to interference at the residence premises or location of the rebuilding, repair or replacement that is caused by or results from fungus. Remediation is excluded including the cost to remove fungus from covered property or to repair, restore, or replace damaged property and tearing out and replacing any part of the building or other property as needed to gain access to the fungus. The excluded remediation further includes the cost of any testing or monitoring of air or property to confirm the type, absence, presence or level of fungus, whether performed prior to, during or after removal, repair, restoration or replacement of covered property.

D. Fungus (Including Mold) Limited Coverage Endorsement FE-5410.

This endorsement may be attached to homeowners, condominium unitowners, and renters policies to provide remediation of fungus if the fungus is the result of a covered cause of loss. Coverage is provided for any loss of use or delay in rebuilding, repairing or replacing covered property, including any associated cost or expense due to interference at the residence premises or location of the rebuilding, repair or replacement that is caused by or results from the fungus. Coverage is provided for remediation including the cost to remove fungus from covered property or to repair, restore or replace damaged property and tearing out and replacing any part of the building or other property as needed to gain access to the fungus. Coverage for remediation also includes the cost of any testing or monitoring of air or property to confirm the type, absence, presence or level of fungus, whether performed prior to, during or after removal, repair, restoration or replacement of covered property.

This endorsement does not provide any coverage for fungus which is the result of: (1) continuous or repeated seepage or leakage of water or steam from heating, air conditioning or automatic fire protective sprinkler system, household appliance or plumbing system; or (2) defect, weakness, inadequacy, fault or unsoundness in planning, zoning, development, surveying, siting, design, specifications, workmanship, construction, grading, compaction, materials used in construction or repair, or maintenance of any property whether on or off the residence premises.

Fungus coverage in Endorsement FE-5410 is subject to the following conditions: (1) immediate notice must be provided to the insurer of the occurrence of the covered cause of loss, (2) remediation must begin as soon as possible, and (3) all reasonable means must be used to save and preserve the property from further damage.

Coverage is available for up to four different limits: $15,000, $25,000, $50,000, and the full Coverage A (Dwelling) limit of liability. The limit of liability will be shown on the policy declarations page. This limit applies regardless of the number of covered causes of loss that combine or contribute to the presence of resulting fungus, or the number of claims made during the policy period. The limit also includes any payments for Section I - Additional Coverages and Coverage C - Loss of Use. The limit of liability for the Fungus (Including Mold) Limited Coverage Endorsement is not in addition to the limit of insurance that applies to covered property.

VIII. Phase In Of the Adopted Policy Forms, Water Damage Endorsements, and Dwelling Foundation Endorsement. State Farm in its petition has stated its intent to phase in the adopted policy forms and endorsements for use with State Farm policyholders as the policy forms promulgated by TDI are discontinued for use with State Farm policyholders. State Farm has outlined the details of its plan to phase in the adopted policy forms and endorsements as follows:

A. New Business.

State Farm will write all new business on the adopted policy forms. The adopted policy forms exclude coverage for dwelling foundation losses and limit coverage for water damage losses. At the time each new residential property policy is written, the applicant will be offered a separate dwelling foundation coverage endorsement and a separate water damage coverage endorsement, subject to State Farm's current underwriting guidelines. If the applicant declines the dwelling foundation coverage endorsement or the water damage coverage endorsement at the inception of the policy, these endorsements will not be available to be added to a policy in the future. If a policyholder desires to continue the dwelling foundation coverage (subject to the 15% cap) and water damage coverage that the policyholder essentially has under the HO-B, both the dwelling foundation coverage and water damage coverage endorsements must be purchased for an additional premium.

B. Existing Business.

State Farm will begin to non-renew the in-force HO-A's and HO-B's and offer the new policy forms at the time that it begins to offer the new policies to its new business customers.

1. Homeowners-Form A (HO-A). The HO-A's that are in-force will be non-renewed and offered to the State Farm homeowners policy form without water damage or dwelling foundation coverage endorsements. Since this form does not cover water damage as a named peril, there will be no offer made to these HO-A policyholders allowing them to purchase the water damage or dwelling foundation coverage endorsements. Furthermore, the water damage and dwelling foundation damage endorsements will not be available to be added to the State Farm policy in the future.

2. Homeowners-Form B (HO-B) and Homeowners-Form C (HO-C). The HO-B's and HO-C's that are in force at the time of the conversion will be non-renewed and offered the State Farm policy with the water damage and dwelling foundation damage coverage endorsements attached. State Farm will offer each consumer the opportunity to delete either or both of these endorsements in exchange for a premium credit. If a policyholder chooses the option of deleting these endorsements, they will not be available to be added in the future. The water damage and dwelling foundation endorsements will be available to the policyholder who originally receives the new State Farm policy for as long as that policyholder owns the dwelling insured under the new policy. Water damage and dwelling foundation endorsements that are deleted from this policy at any time will not be available to be added at a later date to this policy or any other policy that may be issued to cover the dwelling originally insured under the new policy.

3. Homeowners Tenant-Form B (HO-BT), Homeowners Tenant-Form C (HO-CT), Homeowners Condo-Form B (HO-CON-B), and Homeowners Condo-Form C (HO-CON-C). The HO-BT's and HO-CT's that are in force at the time of the conversion will be converted to the State Farm renters policy and the HO-CON-B's and HO-CON-C's that are in force at the time of the conversion will be converted to the State Farm condominium unitowners policy with the water damage coverage endorsement attached. State Farm will offer each consumer the opportunity to delete this endorsement in exchange for a premium credit. If a policyholder chooses the option of deleting this endorsement, it will not be available to be added in the future. The water damage endorsement will be available to the policyholder who originally receives the new State Farm policy for as long as that policyholder owns the condominium insured under the new policy or as long as that tenant occupies the dwelling, apartment or townhouse insured under the new policy. A water damage endorsement that is deleted from these policies at any time will not be available to be added at a later date to these policies or any other policy that may be issued to cover a condominium or tenant occupied dwelling, apartment, or townhouse originally insured under the new policy.

4. Consumer Disclosures. State Farm agrees to provide an explanatory letter and a summary of coverages expressly noting where there is less coverage, or in some cases a change in coverage, in the State Farm policies than in the currently prescribed policies to the policyholders who are being converted from the currently prescribed Texas forms to the new State Farm forms. This notice letter will be sent to the policyholders sixty (60) days in advance of the policy conversion date. This notice letter will be provided to the Department for its review prior to State Farm's use of this letter. State Farm has indicated in a letter to the Commissioner dated June 14, 2000, that policyholders who convert to the new State Farm policy forms and who purchase both the dwelling foundation and water damage endorsements will continue to have essentially the same comprehensive foundation and/or water damage coverage that they have under the currently prescribed policies.

C. Rating Information.

State Farm has agreed in its petition to file its initial rates and any rate changes for policies written through State Farm Lloyds with the Department for a period of two years from the date the policies are first sold to allow the Department to monitor the rates on the new State Farm policies. This filing shall include detailed information showing the rate changes and rate reduction that consumers would receive if they purchased the State Farm Policy as compared to purchasing the HO-B. State Farm also agrees to provide the Department with a copy of its loss cost analyses during the time period it is providing the rating information. State Farm agrees to provide consumers with the opportunity to reduce their homeowner's premiums based on their coverage selections. State Farm represents that it does not anticipate that the State Farm Policy with the water endorsement, foundation endorsement, and mold endorsement will be priced higher than the modified HO-B with a 100% buy back of the mold coverage. State Farm further represents that policyholders will be able to reduce their basic homeowners premium from 7% to 40% depending on their geographic location in the state and their coverage selections in comparison to the premium that State Farm would charge for the basic HO-B.

IX. Phase In Of the Fungus (Including Mold) Limited Coverage Endorsement. State Farm has agreed in its petition to offer the Fungus (Including Mold) Limited Coverage Endorsement to new policyholders and existing policyholders currently receiving ensuing mold damage coverage under the HO-B policy form. Existing policyholders can elect to include mold coverage by adding this coverage by endorsement for an additional premium charge. State Farm has also agreed to make the Fungus (Including Mold) Limited Coverage Endorsement available to new and existing policyholders under the condominium unitowners policy and the renters policy. Once a policyholder has rejected the Fungus (Including Mold) Limited Coverage Endorsement, State Farm will not offer to sell the endorsement at subsequent renewals. However, if the Fungus (Including Mold) Limited Coverage Endorsement has been rejected by a policyholder, State Farm has agreed to make the endorsement available only under all of the following conditions: (1) at the request of the policyholder, (2) at the time of a subsequent renewal, and (3) subject to State Farm's underwriting guidelines and pricing.

X. Other Insurers Who Elect to Use the State Farm Residential Property Policy Forms and Endorsements. Article 5.35 was amended by the 75th Texas Legislature, in pertinent part, to allow the Commissioner to adopt policy forms and endorsements of national insurers. That bill, SB 1499, in addition to adding current subsection (b), amended subsection (a), which has historically been the source of the agency's authority to adopt standard, promulgated forms, to provide that such forms "may be used by an insurer without filing for approval to use such form." SB 1499 did not add similar language to subsection (b), pursuant to which the State Farm filing was made. In addition, subsection (e) of Article 5.35 states that no form or endorsement can be delivered or issued for delivery in this state unless adopted or approved pursuant to subsections (a), (b), (c), or (d). Therefore, any insurer that wishes to use the policy and endorsements adopted in this order must make a filing for approval with the Department and agree to abide by the conditions and requirements imposed by this order including: (1) agree to provide rating information including detailed information regarding premium reduction for reduced coverage; (2) agree to offer the Water Damage Endorsements, the Dwelling Foundation Endorsement, and the Fungus (including Mold) Limited Coverage Endorsement in accordance with the terms specified herein; (3) agree to provide the consumer disclosures as specified herein; and (4) agree to comply with Commissioner's Order No. 01-1105, concerning Mold, Fungi, and Other Microbes; specifically, to extend coverage for reasonable and necessary repair or replacement of property physically damaged by a covered water loss which damage shall include mold, fungi, or other microbes, including a water loss that involves hidden and undetected damage, and where the insured has reported the loss within thirty (30) days of its detection. This does not preclude other insurers from filing individual policies or endorsements, which will be subject to Department review and consideration.

XI. Severability. If any provision of this order or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of this order that can be given effect without the invalid provision or application, and to this end the provisions of this order are declared to be severable.

The Commissioner has jurisdiction of this matter pursuant to the Insurance Code, Articles 5.35 and 5.96.

The policy forms and endorsements as adopted by the Commissioner of Insurance are on file with the Chief Clerk's Office of the Texas Department of Insurance under Reference No. P-0301-04 and are incorporated by reference by Commissioner Order No. 02-0208.

This notification is made pursuant to the Insurance Code, Article 5.96, which exempts it from the requirements of the Government Code, Chapter 2001 (Administrative Procedure Act).

Consistent with the Insurance Code, Article 5.96 (h), the Department will notify all insurers affected by this section of the adoption by letter summarizing the Commissioner's action.

This agency hereby certifies that the adopted policy forms and endorsements have been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.

IT IS THEREFORE THE ORDER of the Commissioner of Insurance that three new residential property policy forms which include form no. FP-7955 (homeowner policy), form no. FP-7954 (renters policy), and FP-7956 (condominium unitowners policy) and thirty-six endorsements as specified herein and which are attached to this Order and incorporated into this Order by reference, are adopted.


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