State Farm Fire Independent Policy Practice Exam

Which of the following best describes the eligibility criteria for coverage in an HO-3 policy?

1. Only items listed in the declarations are covered.

2. Coverage applies to named risks only.

3. Damage must be accidental and direct.

4. All property on the premises is covered.

The correct answer is: Damage must be accidental and direct.

The eligibility criteria for coverage in an HO-3 policy are best captured by the notion that damage must be accidental and direct. This means that for a claim to be valid under the HO-3 policy, the cause of the damage must be an unexpected event, such as a fire or storm, resulting in physical harm to the property. The policy typically covers damage caused by specific, named perils, but it also generally extends to provide broader coverage than just named risks, as it is an all-risk policy for the dwelling and broad named perils for personal property. This distinction reflects the nature of the HO-3, which is designed to offer a comprehensive level of protection for the policyholder’s home, emphasizing that only incidents that are both accidental in nature and direct in their impact on covered property will qualify for insurance compensation. Understanding this helps clarify why the direct and accidental nature of the damage is a critical part of the eligibility criteria for claims under the HO-3 policy.