Homeowners Insurance (HO Forms)
Homeowners coverage is the heart of personal lines property and is the single largest topic on the California Personal Lines Broker-Agent exam at twenty percent of the questions. Every standard homeowners policy is built from the same basic ISO architecture: a set of Section I property coverages labeled A through D, a set of Section II liability coverages labeled E and F, a list of perils that decides what causes of loss are insured, and a set of conditions and exclusions that determine when the policy pays. This chapter walks through the six common HO forms used in California, then through each Section coverage and limit, then through California-specific endorsements such as the mandatory earthquake offer and the post-disaster non-renewal moratorium, and finally through loss settlement, the standard mortgage clause, and the special sublimits that apply to certain personal property. Master this chapter and you have addressed roughly one out of every five exam questions.
The Six HO Forms at a Glance
California personal lines use six standard homeowners forms, and the exam expects you to know which form fits which insured. HO-2, called the Broad form, covers the dwelling and personal property on a named-perils basis and is rarely sold today. HO-3, the Special form, is the most common owner-occupied policy: it insures the dwelling and other structures on an open-perils basis and covers personal property on a named-perils basis. HO-4, the Tenant or Renter form, has no dwelling coverage at all and instead provides personal property and liability for someone who rents. HO-5, the Comprehensive form, upgrades HO-3 by writing personal property on an open-perils basis as well. HO-6 is the Condominium Unit-Owners form, covering the interior of the unit, personal property, and loss assessment. HO-8, the Modified form, is designed for older homes whose market value is far below replacement cost; it limits dwelling settlement to actual cash value or functional replacement.
Named Perils vs. Open Perils
The difference between named perils and open perils decides who carries the burden of proof at a claim. A named-perils policy lists each cause of loss that is covered, such as fire, lightning, windstorm, hail, explosion, riot, vehicles, smoke, vandalism, theft, falling objects, weight of ice or snow, accidental discharge of water, freezing, and certain electrical damage; if the cause of loss is not on the list, it is not covered, and the insured must prove the loss was caused by a listed peril. An open-perils policy, sometimes called all-risk or special-form, reverses the presumption: every direct physical loss to covered property is insured unless the policy specifically excludes it, and the insurer must prove that an exclusion applies. Open perils is broader and is the reason HO-3 and HO-5 are more attractive than HO-2.
Section I Coverage A: Dwelling
Coverage A insures the dwelling itself, including structures attached to it such as an attached garage, and materials and supplies on or next to the residence premises intended to be used for construction or repair. The limit chosen for Coverage A is the anchor of the policy because most other Section I limits are calculated as a percentage of it. The limit should reflect the cost to rebuild the home, not its market value or the unpaid mortgage balance, since land and location are not covered. Pricing also reflects the construction type, protection class, and distance to the responding fire department.
Section I Coverage B: Other Structures
Coverage B insures structures on the residence premises that are separated from the dwelling by clear space or are connected only by a fence, utility line, or similar connection. A detached garage, a tool shed, a free-standing gazebo, and a backyard fence are typical examples. The standard form sets Coverage B at ten percent of Coverage A as additional insurance, meaning it does not reduce the amount available under Coverage A. Structures used for business or rented to a non-tenant are excluded, though limited coverage for a private garage rented out is provided.
Section I Coverage C: Personal Property and Special Limits
Coverage C insures personal property owned or used by an insured anywhere in the world. On owner-occupied forms the standard limit is fifty percent of Coverage A, and the insured may raise or lower it; tenant and condo forms set their own Coverage C limit because there is no Coverage A. Property usually away from the residence premises is covered at the greater of ten percent of Coverage C or one thousand dollars. Coverage C is written on a named-perils basis under HO-2, HO-3, HO-4, HO-6, and HO-8, and on an open-perils basis under HO-5. Several categories of property carry special interior limits even though they are not excluded: money and bank notes around two hundred dollars, securities and manuscripts around fifteen hundred dollars, watercraft and trailers a few thousand dollars, jewelry, watches, and furs typically fifteen hundred dollars for loss by theft, firearms around twenty-five hundred dollars for theft, silverware and goldware around twenty-five hundred dollars for theft, and business property on premises a small limit. To insure a valuable item at its full appraised value an insured uses scheduled personal property coverage, which removes the special limit, broadens perils, and may eliminate the deductible.
Section I Coverage D: Loss of Use
Coverage D pays for the extra costs an insured incurs when a covered Section I loss makes the residence unfit to live in. Three benefits are available: additional living expense, which reimburses the increase in the household's normal cost of living, such as hotel bills and restaurant meals beyond what the family would have spent at home; fair rental value, which replaces the income an insured would have earned from a rented portion of the residence; and civil authority, which provides up to two weeks of these benefits if a government order prevents access to the home because of damage to a neighboring property by a covered peril. The standard Coverage D limit is twenty percent of Coverage A on HO-3 and HO-5, ten percent on HO-8, and thirty percent of Coverage C on HO-4 and HO-6. Payments continue for the reasonable time needed to repair or replace the residence or, for a permanent relocation, for the reasonable time to settle elsewhere.
Section II Coverages E and F: Liability and Medical Payments
Section II protects the insured against claims by third parties. Coverage E, personal liability, pays sums the insured becomes legally obligated to pay because of bodily injury or property damage caused by an occurrence to which the coverage applies, and it provides defense even when the suit is groundless. The standard minimum limit on most policies is one hundred thousand dollars per occurrence and is commonly raised to three hundred thousand or five hundred thousand, with an umbrella above that for larger exposures. Coverage F, medical payments to others, is no-fault: it pays the reasonable medical expenses of a person, other than an insured, who is injured on the residence premises with permission or off-premises because of activities of an insured. The standard Coverage F limit is one thousand dollars per person and can be increased to five thousand. Liability and medical payments do not apply to bodily injury to an insured, intentional acts, business activities, motor vehicles on public roads, or aircraft.
Common Section I Exclusions
Even an open-perils policy is not a maintenance contract, so a familiar list of exclusions appears in every HO form. Earth movement, including earthquake, landslide, and sinkhole, is excluded unless an earthquake endorsement or a separate California Earthquake Authority policy is purchased. Flood, including surface water, mudflow, and tidal water, is excluded and is insured separately through the National Flood Insurance Program or a private flood carrier. War and nuclear hazard are excluded. Intentional acts by an insured, ordinance or law requiring upgrades to undamaged parts of a building, neglect, wear and tear, mechanical breakdown, and damage caused by insects, rodents, and domestic animals are all excluded. Loss caused by a power failure that occurs off the residence premises is excluded, even if it leads to a covered loss such as food spoilage, unless an endorsement is added. Business pursuits on the premises are excluded from Section I property and Section II liability, with limited business property coverage under Coverage C.
California-Specific Endorsements and Statutory Rules
California has a few homeowners rules that the exam tests directly. First, an insurer that writes a homeowners policy must make a mandatory offer of earthquake coverage under California Insurance Code §10081 and following; the insured may accept or reject the offer in writing, but the offer must be made every other renewal at a minimum. Most California earthquake coverage is written through the California Earthquake Authority, a privately funded public entity created after the 1994 Northridge earthquake, with high deductibles and limited contents and loss of use sublimits. Second, after a Governor-declared state of emergency from a wildfire or other disaster, California Insurance Code §675.1 prohibits an insurer from cancelling or non-renewing a residential property policy for one year because the property is located in the affected area, provided the insured did not commit fraud and continues to pay premium. Third, inflation guard coverage automatically increases the Coverage A limit by a stated percentage each year, and replacement cost coverage on the dwelling is the norm when the home is insured to at least eighty percent of replacement value. Finally, agents must use the California Residential Property Insurance Disclosure and the Bill of Rights at new business and renewal.
Loss Settlement, Mortgage Clause, and Loss Assessment
Once a covered loss occurs, the homeowners form decides how much the insurer pays. The dwelling on HO-2, HO-3, HO-5, and HO-6 is settled on replacement cost without depreciation, provided the dwelling is insured to at least eighty percent of full replacement cost at the time of loss; if it is insured to less than eighty percent, the insurer pays the larger of actual cash value or a coinsurance penalty calculation, never more than the limit. The dwelling on HO-8 is settled on actual cash value or functional replacement, reflecting that older home's market reality. Personal property is settled on actual cash value unless a replacement cost endorsement is added, which is common. The standard mortgage clause protects the lender named in the declarations: the lender's interest is paid even if the named insured's act or neglect would otherwise void coverage, the insurer must give the mortgagee at least ten days' written notice before cancelling, and the mortgagee must pay premium on request and provide proof of loss if the insured does not. The liberalization clause says that if the insurer broadens coverage without additional premium during the policy term, the broader coverage applies automatically to all existing policies. Loss assessment under Coverage E and on HO-6 pays an insured's share of an assessment levied by a condo or homeowners association because of a covered loss to commonly owned property, subject to a sublimit, often one thousand dollars unless increased by endorsement.
Last updated: May 2026