Homeowners Insurance (HO Forms)
The Homeowners (HO) policy is the most widely sold personal-lines property contract in California, and it produces roughly fifteen of every one hundred questions on the Property & Casualty Broker-Agent exam. The package combines real-property coverage, personal-property coverage, loss-of-use coverage, personal liability, and medical payments to others into one contract with shared declarations, exclusions, and conditions. This chapter walks through the six common form types (HO-2, HO-3, HO-4, HO-5, HO-6, and HO-8), the four Section I property coverages (A through D), the two Section II liability coverages (E and F), the standard exclusions, loss settlement rules, special internal limits, important conditions like the mortgage and liberalization clauses, and the California-specific overlay that includes the mandatory earthquake offer, the §675.1 wildfire moratorium, the FAIR Plan as a market of last resort, and the Fair Claims Settlement Practices regulations. Master these twelve sections and you will own the largest single block of the exam.
The Six Standard HO Forms at a Glance
California carriers use the Insurance Services Office (ISO) Homeowners program or close proprietary equivalents. The HO-2 Broad Form covers the dwelling and personal property on a named-peril basis, listing about sixteen perils such as fire, lightning, windstorm, hail, explosion, riot, vehicles, smoke, vandalism, theft, falling objects, weight of ice or snow, accidental discharge of water, freezing of plumbing, sudden tearing of a heating system, and artificially generated electrical current. The HO-3 Special Form, by far the most common owner-occupied contract, upgrades the dwelling and other structures to open-peril coverage (any cause not excluded), while leaving personal property on the same named-peril list. The HO-4 Contents Broad Form, often called the renter's or tenant's form, contains no dwelling coverage at all and protects only the tenant's personal property, additional living expense, liability, and medical payments. The HO-5 Comprehensive Form is the broadest standard contract sold, applying open-peril coverage to both the dwelling and personal property. The HO-6 Unit-Owners Form is designed for condominium owners and covers interior building items, personal property, additional living expense, liability, medical payments, and a built-in loss-assessment coverage. The HO-8 Modified Coverage Form is reserved for older or historic homes whose replacement cost greatly exceeds market value and settles dwelling losses on an actual cash value or repair-cost basis.
Section I — Coverage A (Dwelling) and Coverage B (Other Structures)
Coverage A insures the dwelling on the residence premises shown in the declarations, including structures attached to the dwelling and materials and supplies on or next to the premises that are used to construct, alter, or repair the dwelling. The amount the insured carries for Coverage A is the keystone of the policy because the optional and additional coverages are usually expressed as a percentage of Coverage A. The agent's first task is to determine the replacement cost of the dwelling, typically by using a cost-estimator that considers square footage, construction class, roof type, and finish quality. Coverage B, Other Structures, automatically provides an additional amount of insurance equal to 10% of Coverage A for buildings on the same premises that are separated from the dwelling by clear space, such as detached garages, sheds, fences, swimming pool houses, and gazebos. If the insured operates a business from a detached structure, Coverage B is sharply restricted: structures rented to others or used for business are excluded. An insured who needs more limit can buy a higher Coverage B by endorsement.
Section I — Coverage C (Personal Property) and Coverage D (Loss of Use)
Coverage C covers personal property owned or used by an insured anywhere in the world, and is automatically written at 50% of Coverage A on an owner-occupied HO-3 (other percentages apply to HO-4 and HO-6, where Coverage C is the keystone amount). Coverage C extends to personal property of guests and residence employees while on the residence premises, and to a percentage (commonly 10%) of personal property at another residence — useful for a college student temporarily living away. Coverage D, Loss of Use, pays the necessary increase in the insured's cost of living above the normal pre-loss baseline whenever a Section I peril makes the residence uninhabitable. Loss of Use is itself made up of two parts: additional living expense (ALE) for temporary lodging, meals, and similar costs while the family is displaced, and fair rental value if the insured was renting any part of the dwelling to a tenant. The amount available for Coverage D is usually 30% of Coverage A on an HO-3, payable for the shortest time required to repair or replace the damaged property or for the household to permanently relocate.
Section I — Special Internal Limits and Scheduled Personal Property
Even within Coverage C, the standard form imposes special internal limits (sometimes called sublimits) on classes of property that are easily stolen, hard to value, or invite moral hazard. Common sublimits include $200 on money, bank notes, and bullion; $1,500 on securities and manuscripts; $1,500 on watercraft and trailers; $1,500 for theft of jewelry, watches, furs, and precious stones; $2,500 for theft of firearms; $2,500 for theft of silverware, goldware, and pewterware; and $2,500 on business property on the residence premises. These limits apply per loss in addition to the Coverage C limit. To insure valuables fully and on broader perils, the insured adds a Scheduled Personal Property endorsement (or a separate Personal Articles Floater on an inland marine form). Each scheduled item is listed individually with an appraised value, the deductible is generally waived, coverage is on an open-peril basis including mysterious disappearance, and the special-limits cap does not apply.
Section II — Coverage E (Personal Liability) and Coverage F (Medical Payments)
Section II is the liability half of the homeowners contract. Coverage E pays sums the insured is legally obligated to pay as damages because of bodily injury or property damage caused by an occurrence to which the coverage applies. The standard limit on the ISO form is $100,000 per occurrence, although insureds routinely buy $300,000 or $500,000 and frequently pair the policy with a Personal Umbrella for $1 million or more. The insurer also has the duty to defend the insured against any covered suit, and defense costs are paid in addition to the limit. Coverage F, Medical Payments to Others, is a small no-fault coverage that pays reasonable medical expenses incurred within three years by anyone (other than the insured or a regular resident of the household) who is injured while on the insured location with the insured's permission, or off the location through the act of an insured, residence employee, or owned animal. Typical limits are $1,000 to $5,000 per person. Coverage F is designed to head off small claims before they ripen into liability lawsuits.
Section II — Definition of Insured, Insured Location, and Exclusions
An insured under Section II is the named insured and resident spouse, resident relatives, and persons under age 21 in the care of the named insured. An insured location includes the residence premises, other premises the insured occupies in connection with the residence, vacant land owned or rented by the insured, individual cemetery plots, and any premises the insured uses temporarily (such as hotel rooms or vacation rentals). Section II contains several important exclusions: business activities of the insured (a home-based daycare or for-profit venture requires a separate policy or in-home business endorsement); rendering or failing to render professional services; ownership or operation of most motorized land vehicles, watercraft over a certain size and horsepower, and aircraft; intentional acts causing bodily injury or property damage; communicable disease transmission; sexual molestation; controlled-substance offenses; and bodily injury to an insured. The policy also excludes obligations under workers' compensation or similar laws because employer-employee injuries belong on a workers' comp policy, not a homeowners policy.
Standard Exclusions and the Need for Companion Coverages
Every ISO homeowners form contains a list of Section I exclusions that the insured needs to understand because they identify gaps that require separate coverage. Earth movement (earthquake, landslide, mine subsidence) is excluded but available through the California Earthquake Authority companion policy or a difference-in-conditions endorsement. Flood (surface water, waves, tidal water, overflow of any body of water) is excluded and requires a National Flood Insurance Program (NFIP) policy or a private flood insurer. War, nuclear hazard, and government action are excluded as catastrophic and uninsurable. Intentional loss caused by the insured is excluded as a matter of public policy. Ordinance or law (the increased cost to bring damaged property up to current building codes) is excluded by default but can be added back with an Ordinance or Law endorsement. Neglect, wear and tear, settling, mold, vermin, and faulty workmanship are all excluded as inevitable or uninsurable losses, although some forms cover ensuing fire or other named perils that follow.
Loss Settlement on the Dwelling: 80% Coinsurance and Replacement Cost
The standard HO-3 dwelling loss settlement clause uses an 80% coinsurance trigger. If the insured carries Coverage A equal to at least 80% of the dwelling's full replacement cost at the time of loss, partial losses are paid at full replacement cost up to the policy limit, with no deduction for depreciation. If the insured carries less than 80%, the insurer pays the larger of (a) actual cash value of the part of the building damaged, or (b) the proportion that the limit bears to 80% of the full replacement cost, again up to the policy limit. To stay above the 80% line as construction costs rise, many insureds add an Inflation Guard endorsement, which automatically increases Coverage A by a stated percentage (often pro-rated quarterly) during the policy term. Newer Extended Replacement Cost endorsements go further, agreeing to pay 25% or 50% above the dwelling limit if needed to rebuild after a covered loss, while Guaranteed Replacement Cost endorsements remove the cap altogether, subject to underwriting and the insured maintaining an accurate cost estimate.
Personal Property Settlement: ACV vs. Replacement Cost
Unless modified by endorsement, personal property losses under Coverage C are settled on an actual cash value (ACV) basis: the replacement cost of the damaged item at the time of loss, minus depreciation for age, condition, and obsolescence. So a six-year-old couch destroyed by fire might pay a fraction of what a new couch costs. Almost every insured therefore adds the Personal Property Replacement Cost endorsement, which pays full replacement cost (with no deduction for depreciation) for items the insured actually replaces within a stated time, usually 180 days. The endorsement still respects the special internal limits — adding it does not lift the $1,500 jewelry-theft cap — but it makes a major difference at claim time. ACV is also the default settlement basis on awnings, carpeting, household appliances, outdoor antennas, and outdoor equipment even when the policy is otherwise replacement-cost on the dwelling.
Mortgage Clause, Liberalization Clause, and Other Key Conditions
The standard mortgage clause (also called the union mortgage clause) protects the lender's interest in the property even when the insured's own claim might be denied. If the insurer cancels for non-payment of premium, it must give the mortgagee at least 10 days' written notice; cancellations for other reasons typically require 30 days' notice. The mortgagee may pay the premium itself to keep the policy in force, and if the loss is paid the insurer can require the mortgagee to assign its rights in the debt to the extent of the payment. The liberalization clause provides that if the insurer adopts any broader policy form during the policy term (or within a stated window, often 45 or 60 days before inception) without additional premium, the broader form applies automatically to the existing policy without an endorsement. Other key conditions include the appraisal procedure for resolving valuation disputes, the suit-against-insurer condition that imposes a one- or two-year limit on the insured's right to sue, the assignment condition that forbids transfer of the policy without insurer consent, and the salvage and abandonment rules that prevent the insured from abandoning damaged property to the insurer.
California Overlay — Mandatory Earthquake Offer, Wildfire Moratorium, FAIR Plan
California layers several statutes on top of the ISO homeowners contract that an agent must know cold. Insurance Code §10081 requires every insurer writing residential property insurance to offer earthquake coverage at the time the policy is issued and at least once every other renewal, even though the underlying homeowners form excludes earth movement. Most carriers fulfill the duty by referring the customer to the California Earthquake Authority (CEA), a privately funded but publicly managed entity that issues earthquake policies sold through participating insurers. Insurance Code §675.1 imposes a one-year non-renewal and cancellation moratorium on residential property policies after the Governor declares a wildfire state of emergency, protecting policyholders in or near the burn area whose property survived. Insurance Code §10091 created the California FAIR Plan Association, the market of last resort that issues a stripped-down dwelling fire policy to applicants who cannot obtain coverage in the voluntary market — increasingly important for owners in wildfire-exposed brush areas. FAIR Plan is usually combined with a private Difference-in-Conditions (DIC) policy to fill the many gaps in the FAIR Plan form. Insurance Code §10103.7 also requires insurers to offer a Replacement Cost estimate worksheet so consumers can avoid being underinsured.
Claims Handling — Standard Fire Policy and Fair Claims Settlement Practices
California incorporates the standard form fire insurance policy (Cal. Ins. Code §2071) by reference into residential property policies, which sets baseline rules for proof of loss, examination under oath, appraisal, the suit-against-insurer time limit, and payment of an undisputed loss within 60 days after the sworn proof of loss is received and the amount is agreed. Layered on top of the standard fire policy is the Fair Claims Settlement Practices regulation (10 C.C.R. §§2695.1 to 2695.17), promulgated under the Unfair Insurance Practices Act. The regulation requires the insurer, upon receiving notice of a claim, to acknowledge the claim and respond to written or recorded communications generally within 15 calendar days, to begin any necessary investigation within that same window, to provide claim forms and reasonable assistance, and to accept or deny the claim in whole or in part within 40 calendar days after receiving proof of claim. After accepting a claim the insurer must, except in limited circumstances, tender payment within 30 calendar days. Violations of these standards expose the insurer to administrative fines, market-conduct exams, and bad-faith civil liability under Royal Globe-line cases and Insurance Code §790.03. Agents should document the date of every claim communication so that if a dispute arises later the regulator can verify compliance.
Last updated: May 2026