Fred purchased an older house near a river. Although house needs major repairs, it will be his main residence. River overflows periodically which has caused substantial damage to the several homes in the area. Fred lives alone, but he keeps to German Shepherd dogs on the premises as watchdogs. He also has a long 15 hp boat which is used for fishing.
An insurance agent has informed Fred that the house cannot be insured under homeowners 3 (HO-3) policy because the house did not meet the underwriting departments. Agent stated he would try to get the underwriter to approve a dwelling property three policy (DP 3) or a dwelling property one policy (DP 1). As a last resort, agent stated that care coverage might be available to the states FAIR plan. a. Assume you are risk management consultant. Identify the major loss exposures that Fred faces.
b. Explain the major differences among the HO-3, DP-3, and DP-1 policies discussed by the agent.
c. To what extent will each of the coverage alternatives discussed by the agent cover the loss exposures identified in (a).
d. Assume that Fred buys a DP-3 policy. You recommend that he also purchased the personal liability supplement? Explain.
e. Assume that Fred obtains a DP-1 policy. Do you recommend that the also purchase flood insurance through the national flood insurance program? Explain.