Tech Talk: Another Interesting Homeowner Insurance Question

VP Technical Affairs, MAIA

One of your member benefits is getting your questions answered by MAIA staff. My “specialty” is insurance-related questions.

One agent emailed me ….

Is it building or content?

Is it a chicken or a duck? It came up with one of our companies today.  I have always understood the HO to view carpet two ways – 

wall-to-wall = Coverage A, it's permanently installed, no different than your cabinets, therefore, covered on RCV (assuming all stipulations for replacement cost are met). 

area rugs/carpet = Coverage C, it's NOT permanently installed and can be moved around, rolled up and taken with you, etc., covered on ACV, unless you have HO0490/similar company endorsement. 

The company is telling me that there is something in the HO3/HO5 that says wall-to-wall carpet is covered on ACV value unless HO0490/similar company endorsement is present?

I can't find it in the HO3/HO5 language.  I DO see one of their company-specific endorsements that reference, under Cov C - "RCV is allowed on awnings, carpeting, household appliances, outdoor antennas, and outdoor equipment, whether or not attached to buildings".   Ok - but that assumes wall-to-wall is Cov C, not Cov A, which I don't think that is correct?

I would read that to mean area carpet, not wall-to-wall.  I don't see anything in the ISO policy, which they are using HO 05-11, that defines whether wall-to-wall is Cov A or Cov C. 

Again, it's permanently installed, so I've always understood that to be Cov A.  Have I lost my mind, or am I missing something in the ISO form?  Any help would be greatly appreciated!

Thank you!


My response:

First, I’ve seen wall-to-wall carpeting defined as both building and contents depending on whether it is on subflooring or on top of a finished floor, such as wall-to-wall installed over hardwood floors.  Some companies interpret wall-to-wall over a finished floor to be contents because “a room only has one floor,” is how one adjuster explained it to me.  That could be an interpretation issue because, as you said, the HO policy is silent about this.

HOWEVER, the NFIP flood policy definitely distinguishes wall-to-wall carpeting over a finished floor as Contents:

B. Coverage B—Personal Property

4. Coverage for the personal property includes the following property, subject to B.1 above, which is insured under Coverage B only:

a. Air conditioning units, portable or window type;

b. Carpets, not permanently installed, over unfinished flooring;

c. Carpets over finished flooring;


 A. Coverage A—Building Property

We insure against direct physical loss by or from flood to:

7. The following items of property are insured under Coverage A only:

a. Awnings and canopies;

b. Blinds;

c. Built-in dishwashers;

d. Built-in microwave ovens;

e. Carpet permanently installed over unfinished flooring;

But no edition of the ISO HO policy is this specific as to when wall-to-wall carpeting is building or contents.  HOWEVER, there IS a discussion of carpeting being paid on an Actual Cash Value basis in the Loss Settlement Section

The following is the ISO HO-2000/2011/2022 language – but the HO-91 language is similar.

D.  Loss Settlement

In this Condition D., the terms "cost to repair or replace" and "replacement cost" do not include the increased costs incurred to comply with the enforcement of any ordinance or law, except to the extent that coverage for these increased costs is provided in E.11. Ordinance Or Law under Section I – Property Coverages. Covered property losses are settled as follows:

1.  Property of the following types:

a. Personal property;

b. Awnings, carpeting, household appliances, outdoor antennas, and outdoor equipment, whether or not attached to buildings;

c. Structures that are not buildings; and

d. Grave markers, including mausoleums;

at actual cash value at the time of loss but not more than the amount required to repair or replace.

This is a loss settlement provision - not a coverage provision. Some of the items listed are building or other structures, some are contents, and some items could be both!

Awnings can be part of a building if the awning is attached. Whether the awning is determined as Coverage B Other structures or Coverage A Dwelling will be determined by what building the awning is attached to (home or garage).  Outdoor antennas and equipment can be Coverage B Other Structures if separate from the dwelling or Coverage A if attached to the dwelling.

Structures that are not buildings, such as driveways, fences, and flagpoles, are Coverage B Other Structures. 

Carpeting can be either Coverage A or C. Certainly, oriental carpets are Coverage C. Depending on how the wall-to-wall carpeting is installed coupled with the insurance company interpretation can determine whether carpeting is Coverage A or C.  Under an HO-3, this would mean a “perils” difference as the building is covered unless excluded, and contents are only covered for 16 lonely little-named perils.  If one sells the HO-5 Comprehensive Form (or the HO-3 + HO-15 if using HO-91), then all property is “covered unless excluded,” whether building or contents. 

Regardless of whether carpeting is considered building or contents, ALL ISO HO editions adjust losses for carpeting of ANY type on an ACV (depreciated) basis.

The awnings, outdoor equipment, and structures that are not buildings are subject to the “outside elements” and can devalue more quickly than, say, vinyl siding or wood clapboards on a house.

Carpeting, whether wall-to-wall or oriental, gets “foot traffic” and, therefore, more wear and tear than wallpaper or ceiling tiles.  Carpeting will also wear out faster than hardwood flooring. 

The HO 04 90 Replacement Cost Loss Settlement Endorsement is important for ALL clients

As long as I have been teaching and even before when I worked as an agent, I have suggested that all ISO HO forms in any HO edition should have the HO 04 90 Personal Property Replacement Cost Loss Settlement Endorsement added.  Whether selling the HO-4;6;3; or 5, one needs the replacement cost endorsement to modify the loss settlement provision in the policy.

The first paragraph of the Personal Property Replacement Cost Loss Settlement Endorsement HO 04 90 states:

A. Eligible Property

1. Covered losses to the following property are settled at replacement cost at the time of the loss:  

a. Coverage C; and

b. If covered in this policy:

(1) Awnings, outdoor antennas, and outdoor equipment; and

(2) Carpeting and household appliances;

whether or not attached to buildings.

In order to “guarantee” that carpeting, whether Coverage A or Coverage C, has covered losses settled on a replacement cost basis is dependent on having THIS endorsement attached to the ISO HO form.

There are some who believe “permanently installed carpet over finished floor” is building and look at personal property as “something that you bring with you when you move,” as you stated in your email, but this is a “where it is covered” issue not an “on what basis loss is settled” issue.

So, the moral of THIS story is ALWAYS add the HO 04 90 Personal Property Replacement Cost Loss Settlement Endorsement to each and EVERY HO client!

Happy holidays!  Your association is there for you!

As always, if you have any further questions, please feel free to email me, Irene Morrill, Vice President of Technical Affairs, at [email protected]

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