Homeowner's Mini-case

The objective of the case is to show your knowledge of limits, exclusions, endorsements and scheduling that are related to homeowners and auto insurance. Most people, I believe, don't understand their policies since they never read the policy or related documents, nor do they understand insurance coverage other than they think any loss will be covered.

The situation: Roberta and Andy just bought a house in Central New York. It is in a suburban setting on a half acre of land. The house sits on a corner lot on a side street in a nice neighborhood. The house has 4 bedrooms and 2 bathrooms. There is a very large detached garage with a small apartment on the second floor where they plan to store items rather than rent it out, a large patio and an in-ground swimming pool. There is a six foot fence surrounding the pool. There are fruit trees and some other landscaping. The house sits in the flood plain of the Oneida River. Andy just found some dry-rot in the garage.

Roberta and Andy bought the house for $250,000. A building lot in the neighborhood sells for $40,000. They have moved in furniture and personal items (silverware, Andy's watch and stamp collection, grandparents' antiques, a set of pearls from Roberta's great-aunt's estate, clothes, HD widescreen television, weight-room equipment, etc.) and the children's toys etc. The entire contents would cost $140,000 to replace new in today's market. They also have a large outboard motor boat, which measures 40 feet long, that they keep in the garage. It cost $30,000 new but is 10 years old now. Andy also has a 1973 MG Midget sports car on blocks in the garage. He plans to restore it and has some of replacements for the electrical system that he bought on eBay. He has the electrical components in a bag on the front seat of the car.

There is a mortgage of $175,000 on the house. They have a homeowners insurance policy, with a limit of $300,000.00. By the way, they usually have a 4 year old Jeep Cherokee and a 1 year old Toyota Camry in the driveway when both Roberta and Andy are at home. They own both cars. They drive the Jeep 20,000 miles a year, sometimes into Canada. The Camry is driven mostly to work and has 5000 miles driven per year.

Some other considerations include the following. Roberta was just "downsized" from her public relations (PR) job. She is considering running her own PR firm out of the house. Her parents are selling their house and moving to Arizona and moved some business receipts and some of their furniture in to Roberta and Andy's garage for six months. The children have been teasing for a pet and get a dog from the pound and name it Cheesy. Andy is a bit of a worrier and reads that central New York State hasn't had a hurricane or earthquake in many years and might be due at least one of these natural disasters. Finally, they have HO-3 form coverage.

You have talked these two people into letting you do a risk audit for them. What do you tell them about their present situation with respect to coverage of the following? Please be sure to address the items noted below. Also, remember that homeowners covers property & liability.

1. What they will likely recover if the house and all contents burns to the ground.

2. What they will likely recover if the garage burns to the ground, with the boat and everything else inside when the fire destroys the garage.

3. What they are likely to recover if a hurricane destroys the mature fruit trees.

4. What they are likely to recover if an earthquake ruins the patio and swimming pool.

5. What will they recover if Cheesy bites two plumbers hired to replace pipes in the basement, causing $20,000 in medical costs and disfigurement of one of the plumber's hands, so he may not be able to be a plumber any longer (thus causing the plumber to sue for $500,000).

6. What will they recover if steady rains, that last a week, drive the river well over its banks and floods the basements and first floors of the houses in the neighborhood?

7. What do you recommend for their auto insurance?

Please be sure to draw a list of suggestions to help this family.

Please hand in your responses before leaving tonight.