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Commissioner's Order 02-0523

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 two new residential property policy forms which include form no. HO-3RTX (homeowners policy form), and form no. HO-6RTX (condominium unit owners policy) filed by United States Automobile Association and USAA Lloyds (collectively referred to as USAA) and further has adopted fifty-one 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, USAA 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:

  1. 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
  2. contains provisions or has any titles or headings which are unjust, encourage misrepresentation, are deceptive, or violate public policy."

USAA´s original petition on this matter, filed on September 2, 1997, requested the adoption of a new Texas homeowners policy and condominium unit owners policy. USAA subsequently made several modifications to the homeowners policy, as originally filed, as a result of discussions with Department staff. On February 27, 2002, USAA amended the petition to reflect the modifications that had been discussed by USAA and Department staff. On April 3, 2002, USAA made additional amendments to the petition to reflect modifications to certain endorsements in response to discussions with Department staff. Potential action on these policy forms and endorsements was noticed in the Texas Register (27 TexReg 2077) on March 15, 2002, and a public hearing under Docket No. 2518 was held on April 16, 2002 to solicit comments.

After review of USAA´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 provisos. 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 USAA´s filing is predicated on information and representations provided to the Department by USAA, including the preliminary determination that insureds purchasing the new basic policy forms and endorsements can reduce their homeowners premium from 23% to 62% 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 USAA has agreed to, that USAA 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. USAA Homeowners Policy. The following is a general description of the coverage provided by the new USAA 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 a specified 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 specified 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. USAA Condominium Unit Owners Policy. This policy for condominium unit owners covers items of real property which are the insured´s responsibility under the governing rules of a condominium association against the risk of direct physical loss, with certain exceptions. 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 USAA homeowners policy.

III. Changes To the Policies as Proposed. As a result of comments on the proposal, the Commissioner has adopted the homeowners and condominium unit owners policies with changes to the policies as proposed. Form no. HO-3RTX (homeowners policy form) and form no. HO-6RTX (condominium unit owners policy) were adopted with the following changes:

1. With respect to both policies, under Section II-Exclusions, 1. Coverage E-Personal Liability and Coverage F-Medical Payments to Others item k. (pollutant exclusion) has been deleted. In addition, under Section II-Exclusions, 2. Coverage E-Personal Liability, new item g. has been added to exclude liability for property damage that arises from pollutants. The purpose of these changes is to limit the exclusion for liability arising out of the discharge of pollutants. This was achieved by deleting the current pollution exclusion that excluded liability for both bodily injury and property damage and then adding a new pollution exclusion to the Personal Liability exclusions that only excludes liability for property damage that arises from pollutants.

2. With respect to both policies, under Section II-Exclusions, 1. Coverage E-Personal Liability and Coverage F-Medical Payments to Others item m. (microbial organism exclusion) has been deleted. Since both policies were amended to delete this exclusion, the homeowner and condominium unit owner are afforded Personal Liability and Medical Payments to Others coverage arising out of exposure to microbial organisms including mold. USAA is willing to extend this liability coverage arising out of exposure to microbial organisms to the homeowner or condominium unit owner with respect to the house or condominium that the owner occupies. However, USAA is not willing to extend this coverage to the additional residences that a homeowner or condominium owner rents to others. To accomplish this purpose, USAA amended the HO-70 entitled "Additional Residence Rented to Others" to create the HO-70TX that will be used in place of the HO-70. The HO-70TX includes a Section II exclusion for liability arising out of exposure to mold on the premises that are rented to others.

In addition, item l. has been "re-lettered" as item k. to reflect the new sequence of the exclusions that resulted from the above referenced deletion of policy exclusions (k) and (m).

IV. Comparison of the USAA 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 staff´s review of USAA´s homeowners and condominium unit owners policies, staff has noted several differences in the coverage provided in the HO-B and that provided in the USAA policy forms. Since the condominium unit owners policy 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 USAA homeowners policy and the HO-B. However, it should be noted that most of the comparisons of coverage also apply to the condominium unit owners policies.

V. Restrictions In Coverage. The following is a list of some of the restrictions in coverage that are contained in the USAA 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 USAA policy forms. More detailed coverage information is contained in a side by side comparison of the USAA homeowners policy and the HO-B and a side by side comparison of the USAA condominium unit owners policy and the HO-B-CON, which were a part of the record in the hearing on USAA´s petition, and which are available from the Department upon request.

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

The USAA policy provides up to $1,000 in coverage for watercraft, including their trailers, furnishings, equipment and outboard motors and other trailers not used with watercraft for losses that occur on and off premises for named perils. (See Section I-Property Coverages, Coverage C-Personal Property, Special Limits of Liability, items 3. and 4.) The USAA policy provides theft coverage for watercraft, including their trailers, furnishings, equipment and outboard motors or trailers and campers 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-Perils Insured Against, paragraph 9) The USAA policy provides windstorm and hail coverage for boats and their trailers only if they are inside a fully enclosed building. (See Section 1-Perils Insured Against, 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 USAA policy limits the coverage for firearms to losses by the peril of theft with a maximum limit of liability of $2,000. (See Section I- Property Coverages, Coverage C-Personal Property, Special Limits of Liability, item 6.) 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 USAA policy limits the coverage for goldware, gold-plated ware, silverware, silver-plated ware, and pewterware (this includes flatware, hollowware, tea sets, trays and trophies made of or including silver, gold or pewter) to losses by the peril of theft with a maximum limit of liability of $2,500. (See Section I-Property Coverages, Coverage C-Personal Property, Special Limits of Liability, item 7.) 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 USAA policy provides $3,000 coverage for golf carts and their equipment and accessories. (See Section I - Property Coverages, Coverage C - Personal Property, Special Limits of Liability, item 9) 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. (See Section I - Property Coverage, Coverage B (Personal Property) Property Not Covered, paragraph 3.c.)

E. Coverage for Tree Debris Removal.

The USAA policy limits the coverage for the removal of debris from fallen trees to $500. (See Section I-Property Coverages, Additional Coverages, item 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 USAA policy specifies that it does not include coverage for losses to a dwelling and other structures caused by constant or repeated seepage or leakage over a period of weeks, months, or years from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system or from within a household appliance. (See Section I-Perils Insured Against, item 2.e.) The HO-B provides coverage for accidental discharge, leakage, or overflow of water or steam from within a plumbing system, heating or air conditioning system, or household appliance which occurs over a period of time. Coverage for water damage from constant or repeated seepage or leakage of water or steam is not excluded in the HO-B. (See Section 1-Perils Insured Against, paragraph 9.)

2. The USAA policy does not cover losses to the dwelling and other structures caused by water which backs up through sewers or drains or which overflows from a sump pump, sump well, or similar device designed to drain water from the foundation area. (See Section I-Exclusions, item 1.c.(2)) Further, the USAA policy does not cover losses to personal property caused by water which overflows from a sump pump, sump well, or similar device to drain water from the foundation and it does not cover losses to personal property on the residence premises caused by accidental discharge or overflow which occurs off the residence premises. The HO-B provides coverage for damage to property covered under Coverage A (Dwelling) or Coverage B (Personal Property) 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. USAA has indicated how it intends to adjust a covered water claim if mold is present on the damaged covered property. USAA has represented to the Department that even though its Homeowners policy and Condominium Unit Owners policy excludes loss caused by or consisting of mold, mold is necessarily removed or treated in the process of repairing damage resulting from a covered water loss. Mold that is present upon water damaged materials will be removed in the course of repairing the covered water loss. Expenses which are related solely to the existence of mold are the only expense which would not be covered in the course of repair of a covered water damage claim. In addition, notwithstanding the exclusion for constant repeated seepage or leakage of water or steam over a period of weeks, months, or years, USAA agrees to cover the cost of reasonable and necessary repair of direct physical damage to the dwelling or property caused by a covered water loss that is hidden or undetected and the associated direct physical damage consisting of mold, fungi, or other microbial damage to the dwelling or property, provided the insured reports the loss within thirty days of the date the damage was or should have been detected. This would not cover the cost of remediation, testing, loss of use, or debris removal. Remediation means to treat, contain, remove, or dispose of mold, fungi, or other microbes beyond that which is required to repair or replace the covered property physically damaged by water or steam. Remediation also includes any testing to detect, measure, or evaluate mold, fungi, or microbes and any decontamination of the property. Any coverage for remediation, testing, loss of use, or debris removal would only be available to persons purchasing the USAA Microbial Organisms Coverage endorsement.

G. Coverage for Personal Property.

The USAA policy does not provide coverage for business data stored in books of account, drawing, or other paper records, or electronic data processing tapes, wires, records, discs, or other software media. (See Section I-Property Coverages, Coverage C-Personal Property, item 8.) The HO-B does not contain this exception.

H. Coverage for Loss of Use.

The USAA policy limits the time allowable for payment of Additional Living Expense and Fair Rental Value to 12 months. (See Section I-Property Coverages, Coverage D-Loss of Use, item 1.) The HO-B does not have a time limitation for the payment of Additional Living Expense and Fair Rental Value.

I. USAA Policy Exclusions.

1. The USAA policy excludes loss from freezing, thawing, pressure or weight of water or ice to a swimming pool, fence, pavement, patio, foundation, retaining wall or bulkhead, pier, wharf or dock. (See Section 1-Perils Insured Against, 2.b.) The HO-B does not contain this exclusion.

2. The USAA policy excludes loss from vandalism or malicious mischief or breakage of glass and safety glazing material if the dwelling is vacant for more than 30 days immediately before a loss. (See Section I-Perils Insured Against , item 2.d.) 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 USAA policy excludes loss consisting of (1) weather conditions, (2) acts or decisions, including failure to act or decide, of any person, group, organization or governmental body, and (3) faulty, negligent, inadequate or defective planning, zoning, development, surveying, siting, design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction; materials used in repair, construction, renovation, remodeling or maintenance of part or all of the property whether on or off of the residence premises. However, any ensuing loss from the items specified above is insured unless the ensuing loss is itself a loss that is not insured. (See Section I-Exclusions, item 2.a, b, and c.) The HO-B does not exclude these losses.

4. The USAA policy excludes loss caused by microbial organisms including but not limited to mold, mold spores, fungus, bacterium, or parasitic microorganisms. (See Section I-Exclusions, item 1.i.) Pursuant to Commissioner´s Order No. 01-1105, the HO-B modified by endorsement no. HO-162A provides coverage for removal of ensuing mold, fungi, or other microbial losses caused by sudden and accidental discharge, leakage or overflow of water if the water loss is a covered loss. However, the modified HO-B does not provide coverage for the remediation of mold or fungus.

5. The USAA policy excludes loss caused by settling, cracking, shrinking, bulging or expansion of pavements, patios, foundations, walls, floors, roofs or ceilings. (See Section I - Exclusions, 1. j.) The HO-B provides coverage for an ensuing loss caused by a covered water loss to foundations, walls, floors, ceilings, roof structures, walks, drives, curbs, fences, retaining walls or swimming pools. (See Section I - Exclusions 1. h.) In contrast, the HO-B provides dwelling foundation coverage limits up to the total amount of insurance for Coverage A (Dwelling).

VI. Coverage Enhancements. The following is a list of some of the areas where the USAA homeowners policy provides coverage that is broader than the coverage provided in the HO-B. This list is not intended to cover every enhancement in coverage that is contained in the USAA policy forms. More detailed coverage information is contained in a side by side comparison of the USAA homeowners policy and the HO-B and a side by side comparison of the USAA condominium unit owners policy and the HO-B-CON, which were a part of the hearing record on the USAA petition, and which are available from the Department on request.

A. Personal Property, Coverage Off of the Residence Premises.

The USAA policy provides coverage for personal property away from the residence premises up to the personal property limits. There is an exception to this coverage that limits personal property coverage to the greater of $1000 or 10% of Coverage C-Personal Property, if the damaged property is usually located at an insured´s residence, other than the residence premises. (See Section 1-Property Coverages, Coverage C-Personal Property.) The HO-B limits coverage for losses to personal property away from the residence premises to the greater of $1000 or 10% of the Coverage B personal property limits. (Reference - Section 1-Property Coverage, Coverage B (Personal Property), paragraph 2.) The HO-B also 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. (Reference - Section 1-Exclusions, paragraph 1. d. (1))

B. Personal Property, Special Limits of Liability.

1. The USAA policy provides a $200 limit of liability for losses of money, bank notes, gold other than goldware, silver other than silverware, platinum, coins and medals. (See Section I-Property Coverages, Coverage C-Personal Property, Special Limits of Liability, item 1.) 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 USAA policy provides a $1000 limit of liability for loss of securities, accounts, deeds, evidences of debt, letters of credit, notes other than bank notes, manuscripts, personal records, passports, tickets, and stamps. (See Section I-Coverages, Coverage C-Personal Property, Special Limits of Liability, item 2.) The HO-B provides a $500 limit of liability for "Bullion/Valuable Papers". (See Section I-Property Coverage, Coverage B (Personal Property), Special Limits of Liability, paragraph 2.)

3. The USAA policy provides a $1000 limit of liability for watercraft, including their trailers, furnishings, equipment, and outboard motors and other trailers not used with watercraft while away from the residence premises. (See Section I-Coverages, Coverage C-Personal Property, Special Limits of Liability, items 3. and 4.) The HO-B excludes coverage for boats and boat trailers while away from the residence premises. (See Section I-Property Coverage, Property Not Covered, paragraphs 4. b. and 6.)

4. The USAA policy provides $1,000 coverage for loss by theft of jewelry, watches, precious and semi-precious stones, and furs. (See Section I-Coverages, Coverage C-Personal Property, Special Limits of Liability, item 5.) The HO-B provides a $500 limit of liability for loss by theft of gems, watches, jewelry or furs. (See Section I-Property Coverage, Coverage B (Personal Property), Special Limits of Liability, paragraph 3.)

5. The USAA policy provides $250 coverage for business property away from the residence. (See Section I-Coverages, Coverage C-Personal Property, Special Limits of Liability, item 8.b.) The HO-B does not provide coverage for business property away from the residence.

C. Additional Coverages.

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

2. The USAA policy provides up to $500 for covered damage to any one tree, shrub or plant. The deductible applies to this coverage. (See Section I-Coverages, Additional Coverages, item 3.) The HO-B provides up to $250 for covered damage to any one tree, shrub or plant. The deductible does not apply to this coverage. (See Section I-Property Coverage, Coverage B (Personal Property), Extensions Of Coverage, paragraph 4.)

3. The USAA policy provides up to $500 for a Fire Department Service Charge assumed by contract or agreement for fire department charges incurred when a fire department is called to save or protect covered property from a peril insured against. Coverage is not provided however, if the property is located within the limits of the city, municipality or protection district furnishing the fire department response. (See Section 1-Property Coverages, Additional Coverages, item 4.) The HO-B does not provide fire department service charge coverage.

4. The USAA policy provides up to $1,000 coverage for the insured´s share of a loss assessment charged during the policy period by a corporation or association of property owners when the assessment is made as a result of a direct loss to property owned by all members collectively and caused by a covered peril. (See Section I-Property Coverages, Additional Coverages, item 7.) The HO-B does not provide this coverage.

5. The USAA policy pays up to $5,000 in the aggregate for loss and defense costs relating to the theft or unauthorized use of credit cards or electronic fund transfer cards, forgery of checks or negotiable instruments, acceptance in good faith of counterfeit money, and expenses incurred as the direct result of identity fraud. This coverage is additional insurance. There is no deductible for Credit Card, Fund Transfer Card, Forgery and Counterfeit Money coverage, but there is a $100 deductible for Identity Fraud expense coverage. (See Section 1-Coverages, Additional Coverages, paragraph 6.) 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. The deductible does apply to this coverage. (See Section 1-Property Coverage, Coverage B (Personal Property), Special Limits of Liability, paragraph 1.)

6. The USAA policy provides $250 coverage for lock replacement, with no deductible, if the dwelling door keys are stolen as part of a covered theft loss. The deductible does not apply to this coverage. (See Section I-Coverages, Additional Coverages, item 9.) The HO-B does not provide similar coverage.

7. The USAA policy provides up to $10,000, as an additional amount of insurance, for the cost to replace, rebuild, stabilize, or otherwise restore land, when an insured peril causes the land necessary to support the buildings insured under Coverage A (Dwelling) or Coverage B (Other Structures) to become unstable. (See Section I-Coverages, Additional Coverages, item 11.) The HO-B does not provide this coverage.

8. The USAA policy provides up to $500 coverage for the contents of a deep freeze or refrigerated units on the residential premises for loss due to power failure or mechanical breakdown whether on or off the residence premises. (See Section 1-Property Coverages, Additional Coverages, item 10.) The HO-B limits such loss to $500 if the power failure occurs as a result of physical damage to any power, heating, or cooling equipment that is off of the residence premises and is caused by an HO-B peril. (See Extensions of Coverage, 6. Consequential Loss, b.)

D. Windstorm or Hail Coverage.

The USAA policy does not exclude windstorm or hail coverage for structures or their contents if located wholly or partially over water. (See Not excluded or limited in Section 1-Perils Insured Against, Coverage C-Personal Property, item 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, item 1. c. (1))

VII. Section II-Liability Coverage.

The liability coverage in the USAA policies is comparable to that provided in the HO-B. USAA specifies that its duty to settle or defend ends when the amount paid for damages resulting from the occurrence equals its limits of liability. (See Section II-Liability Coverages, Coverage E, 2.) While the HO-B does not contain this language, such language is specified in other personal liability coverages approved for use in Texas, including the Personal Auto Policy.

USAA adds one Section II - Exclusion that is not contained in the HO-B. The USAA policy excludes personal liability for property damage arising from discharge, dispersal, release, escape, seepage or migration of pollutants. In addition, USAA has included in its HO-70TX endorsement entitled "Additional Residence Rented to Others" a Section II exclusion for liability arising out of exposure to microorganisms, including but not limited to mold on the premises that are rented to others.

VIII. USAA Homeowners Endorsements. In addition to the two residential property policy forms, the Commissioner has adopted fifty-one endorsements pursuant to Article 5.35 (b). Several of the endorsements provide coverage that is not currently available under a Texas homeowners policy, including (1) an Incidental Business Occupancies - Other Residence Endorsement that provides liability coverage for the operation of an incidental business at another residential location owned by the insured, (2) a Structures Rented to Others Endorsement that provides coverage for structures on the residence premises rented to others for use as a private residence, (3) an Other Structures Away from Premises Endorsement that provides 10% coverage for other structures located away from the residence premises such as a storage shed or boat dock, (4) and an Earthquake Endorsement that provides coverage for damage resulting from an earthquake.

A general description of the coverage that will be provided by or excluded by the USAA Slab or Foundation Coverage Endorsement and Water Damage Coverage Endorsement is provided. Additionally, a description of the coverage that will be provided by the USAA Microbial Organisms Coverage Endorsement is provided.

A. Slab or Foundation Coverage Endorsement.

This endorsement provides coverage up to $15,000 for damage to the slab or foundation of the building, if the damage is caused directly by accidental discharge or leakage of water or steam, including constant or repeated seepage over a period of weeks, months, or years from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system or from within a household appliance. The tear out provisions provide two options: (1) the cost of tearing out and replacing any part of the building necessary to repair or replace the plumbing, heating, air conditioning or automatic fire protective sprinkler system or household appliance from which the water or steam escaped, or (2) the cost to reroute the plumbing, heating, air conditioning or automatic fire protective sprinkler system or household appliance. USAA will pay the cost that is actually incurred for either of these options with the choice of options being up to the insured. The endorsement further specifies that the tear out costs are included in the $15,000 limit of liability. The Slab or Foundation Coverage applies only in the event of accidental discharge or leakage of water or steam, including constant or repeated seepage over a period of weeks, months, or years and does not affect any coverage provided elsewhere in the policy. The loss to the system from which the water or steam escaped is not covered. The endorsement does not provide coverage for settling, cracking, shrinking, bulging, or expansion of pavements, patios, walls, floors, roofs, or ceilings whether caused directly or indirectly by accidental discharge or leakage of water including constant or repeated seepage or leakage of steam or water over a period of time from within a plumbing, heating, air conditioning or automatic fire protective sprinkler system or household appliance, except as specifically provided in the Slab or Foundation Coverage Endorsement, regardless of any other cause or event contributing concurrently or in any sequence to the loss. The endorsement specifies that the attachment of the Slab or Foundation Coverage Endorsement does not increase the limit of liability that applies to the covered property. The endorsement further specifies that the exclusion in the policy for slab damage caused by constant or repeated leakage or seepage of water or steam (Section I-Perils Insured Against, Item 2.e.) does not apply to the coverage provided in the Slab or Foundation Coverage Endorsement. In contrast, the HO-B provides dwelling foundation coverage up to the total limit of insurance for Coverage A-Dwelling.

As a result of comments on the proposal, the Commissioner has adopted the Slab or Foundation Coverage Endorsement (HO-143TX) with changes to the endorsement as proposed. The endorsement was adopted with the following changes:

1. In the second paragraph of the endorsement the word "directly" has been removed. This word was removed due to a commenter´s concern that the limiting language "caused directly by accidental discharge or leakage of water" could be read with the concurrent causation language in the endorsement to effectively exclude most foundation damage claims. Therefore, "directly" was deleted to alleviate these concerns.

2. The tear out provisions of the endorsement were modified to allow USAA to pay the cost that is actually incurred for: (1) the cost of tearing out and replacing any part of the building necessary to repair or replace the plumbing, heating, air conditioning or automatic fire protective sprinkler system or household appliance from which the water or steam escaped, or (2) the cost to reroute the plumbing, heating, air conditioning or automatic fire protective sprinkler system or household appliance. The choice of options would be up to the insured.

B. Water Damage Coverage Endorsement.

The endorsement provides coverage for direct physical loss consisting of water damage to property described in Coverage A - Dwelling, Coverage B - Other Structures, and Coverage C - Personal Property caused by the constant or repeated seepage or leakage of water or steam over a period of weeks, months, or years from within a heating, air conditioning or automatic fire protective sprinkler system; household appliances; or plumbing system. A plumbing system includes a shower pan, but does not include the shower stall or shower bath enclosure. The coverage includes the cost of tearing out and replacing any part of the building necessary to provide access to repair the system or appliance from which the seepage or leakage occurred, but does not include the loss to the system or appliance from which the water or steam escaped. The endorsement does not provide coverage for damage caused by constant or repeated seepage or leakage of steam or water, except as specifically provided in the Water Damage Coverage Endorsement, regardless of any other cause or event contributing concurrently or in any sequence to the loss. The endorsement specifies that the attachment of the Water Damage Coverage Endorsement does not increase the limit of liability that applies to the covered property. The endorsement further specifies that the exclusion in the policy for water damage caused by constant or repeated leakage or seepage of water or steam (Section I-Perils Insured Against, Item 2.e.) does not apply to the coverage provided in the Water Damage Coverage Endorsement.

C. Microbial Organisms Coverage Endorsement.

The endorsement provides coverage for direct physical loss to property described in Coverage A - Dwelling, Coverage B - Other Structures, and Coverage C - Personal Property caused by or consisting of microbial organisms (including but not limited to mold, mold spores, fungus, bacterium, or parasitic microorganisms) if the microbial organism is the direct result of a Peril Insured Against or coverage provided as an Additional Coverage. The coverage does not apply if the loss results from the insured´s failure to reasonably maintain or protect the property from further damage following a covered loss. The coverage includes remediation of the microbial organisms including the following costs to: (1) treat, contain, remove or dispose of microbial organisms from covered property or to repair, restore or replace the covered property; (2) test to detect, measure, or evaluate microbial organisms and any decontamination of the covered property. The coverage further includes payment for any necessary increase in costs which the insured incurs to maintain his/her normal standard of living when the residence premises is uninhabitable due to a loss caused by or consisting of microbial organisms. The endorsement specifies that the microbial organisms coverage provided in this endorsement is the only coverage provided under Section I Coverage A-Dwelling, Coverage B-Other Structures, Coverage C-Personal Property, and Coverage D-Loss of Use, regardless of any other cause or event contributing concurrently or in any sequence to the loss. The limits of liability available for microbial organisms coverage are $25,000, $50,000, $75,000, or 100% of the Coverage A-Dwelling limit of liability. The endorsement specifies that the most that USAA will pay under the policy for a microbial organisms loss in any one policy period is the Limit of Liability shown on the Microbial Organisms Coverage Endorsement regardless of : (1) the number of covered losses that contribute to the presence of resulting microbial organism s; or (2) the number of claims made during the policy period. The endorsement specifies that the attachment of the Microbial Organisms Coverage Endorsement does not increase the limit of liability that applies to the covered property or the loss of use and that no deductible applies to this coverage. The endorsement specifies that except as specifically modified in the Microbial Organisms Coverage Endorsement, USAA does not provide coverage for damage caused by microbial organisms regardless of any other cause or event contributing concurrently or in any sequence to the loss. The endorsement further specifies that the exclusion in the policy for microbial organisms (Section I-Exclusions, Item 1.i.) does not apply to the coverage provided in the Microbial Organisms Coverage Endorsement. In contrast, the Mold, Fungi, or Other Microbes Coverage endorsement that may be attached to the HO-B is available with limits of liability in the amounts of 25%, 50%, or 100% of the Coverage A (Dwelling) amount of insurance.

As a result of comments on the proposal, the Commissioner has adopted the "Mold Coverage" endorsement with changes to the endorsement as proposed. Endorsement no. HO-144TX, that may be attached to the homeowners policy and Endorsement no. HO-146TX, that may be attached to condominium unit owners policy were adopted with the following changes:

1. The title of these endorsements has been changed from "Mold Coverage" to "Microbial Organisms Coverage."

2. All references in the endorsements to "mold" or "mold and fungus" have been changed to the more broadly defined term "microbial organism."

3. Language has been added to the beginning of the second paragraph to define microbial organisms as including but not limited to mold, mold spores, fungus, bacterium, or parasitic microorganisms.

IX. Phase In Of the Adopted Policy Forms, Water Damage Endorsements, Microbial Organisms Coverage Endorsements, and Slab or Foundation Coverage Endorsement. USAA in its petition has stated its intent to phase in the adopted policy forms and endorsements for use with USAA policyholders as the policy forms promulgated by TDI are discontinued for use with USAA policyholders. USAA has outlined the details of its plan to phase in the adopted policy forms and endorsements as follows:

A. New Business.

USAA will write all new business on the new policy forms beginning January 1, 2003. The new policy forms limit coverage for dwelling foundation losses and water damage losses and exclude mold damage losses. At the time each new residential property policy is written, the applicant will be offered the Slab or Foundation Coverage Endorsement, the Water Damage Coverage Endorsement, and the Microbial Organisms Coverage Endorsement subject to USAA´s current underwriting guidelines. As a follow up, USAA will also include information regarding the availability of these endorsements, thus affording the insured another opportunity to purchase these endorsements. If a policyholder desires to continue the dwelling foundation coverage (subject to the $15,000 cap), the water damage coverage, and the mold coverage that the policyholder essentially has under the HO-B, the Slab or Foundation Coverage, Water Damage Coverage, and Mold Coverage endorsements must be purchased for an additional premium.

B. Existing Business.

USAA will begin converting renewal business to the new forms effective January 1, 2003.

1. Homeowners-Form B (HO-B). The HO-B´s that are in force at the time of the conversion will be non-renewed and offered the USAA policy without the Slab or Foundation Coverage, Water Damage Coverage, and Microbial Organisms Coverage endorsements attached. The renewal policy packet will contain a cover sheet message informing the consumer of information in the packet regarding the various policy changes. The information will include an explanation of the Slab or Foundation Coverage, Water Damage Coverage, and Microbial Organisms Coverage endorsements with an offer to purchase the endorsements for an additional premium. The endorsements will also be available for purchase at a later date subject to underwriting review.

2. Homeowners Condo-Form B (HO-CON-B). The HO-CON-B´s that are in force at the time of the conversion will be non-renewed and offered the USAA condominium unit owners policy without the Water Damage Coverage and Microbial Organisms Coverage endorsements attached. The renewal policy packet will contain a cover sheet message informing the consumer of information in the packet regarding the various policy changes. The information will include an explanation of the Water Damage Coverage and Microbial Organisms Coverage endorsements with an offer to purchase the endorsements for an additional premium. The endorsements will also be available for purchase at a later date subject to underwriting review.

3. Consumer Disclosures. USAA agrees to provide an explanatory letter and a summary of coverages expressly noting where there is less coverage in the USAA policies than in the currently prescribed policies to the policyholders who are being converted from the currently prescribed Texas forms to the new USAA 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 USAA´s use of this letter. USAA has indicated in a letter to the Department dated February 28, 2002, that policy holders who convert to the new USAA 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.

USAA has agreed to file its initial rates and any rate changes for policies written through USAA 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 USAA policies. This filing shall include detailed information showing the rate changes and rate reduction that consumers would receive if they purchased the USAA Policy as compared to purchasing the HO-B. USAA also agrees to provide the Department with a copy of its loss cost analyses during the time period it is providing the rating information. USAA agrees to provide consumers with the opportunity to reduce their homeowner´s premiums based on their coverage selections. USAA represents that it does not anticipate that the USAA 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. USAA further represents that policyholders will be able to reduce their basic homeowners premium from 23% to 62% depending on their geographic location in the state and their coverage selections in comparison to the premium that USAA would charge for the basic HO-B.

X. Other Insurers Who Elect to Use the USAA 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 USAA 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 Slab or Foundation Endorsement, and the Microbial Organisms Coverage Endorsement in accordance with the terms specified herein; (3) agree to provide the consumer disclosures as specified herein; (4) agree that (a) even though the Homeowners policy and Condominium Unit Owners policy excludes loss caused by or consisting of mold, mold would necessarily be removed or treated in the process of repairing damage resulting from a covered water loss; (b) mold that is present upon water damaged materials would be removed in the course of repairing the covered water loss; and (c) expenses which are related solely to the existence of mold are the only expense which would not be covered in the course of repair of a covered water damage claim; and (5) notwithstanding the exclusion for constant repeated seepage or leakage of water or steam over a period of weeks, months, or years, agree to cover the cost of reasonable and necessary repair of direct physical damage to the dwelling or property caused by a covered water loss that is hidden or undetected and the associated direct physical damage consisting of mold, fungi, or other microbial damage to the dwelling or property, provided the insured reports the loss within thirty days of the date the damage was or should have been detected.

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-0102-1 and are incorporated by reference by Commissioner Order No. 02-0523.

 

IT IS THEREFORE THE ORDER of the Commissioner of Insurance that two new residential property policy forms which include form no. HO-3RTX (homeowner policy) and form no. HO-6RTX (condominium unit owners policy) and fifty-one endorsements as specified herein and which are attached to this Order and incorporated into this Order by reference, are adopted.

AND IT IS SO ORDERED.

 

COMMISSIONER´S ORDER NO. 02-0523


Texas Department of Insurance
Created/Updated 05-23-2002

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