An owner policy must always be written for the amount of the purchase price, but in the event no sale is involved, then for the present fair market value of the premises in question, including improvements, except under the following circumstances:
Where the premises are vacant, but the owner intends to erect improvements thereon in the immediate future, the policy may be written for the value of the land and any existing improvements plus the cost of the improvements to be erected thereon, but, if so written, the applicable exception and clause provided for in Rule P-8 must be placed in the policy.
The amount of the Owner Policy covering a leasehold estate shall, at the option of the Insured, be based upon:
· the total amount of the rentals payable under the lease contract, or
· the value of the land and any existing improvements, or
· the value of the land and any existing improvements and the cost of improvements immediately contemplated to be erected thereupon.
In the case of contemplated improvements, the policy must contain the applicable exception and clause provided for in Rule P-8.
Easement:An Owner Policy covering an easement estate shall be written for the amount of the value of the easement at the time the policy is issued.
The general rules in relation to the amount of a loan policy are as follows:
A loan policy must always be written for the original amount of the mortgage, except under the following circumstances:
- When the land covered in the policy represents only part of the security of the loan(s), the loan policy shall be written in the amount of the value of said land or the amount of the loan, whichever is lesser.
- A loan policy may be issued in an amount equal to the original principal amount of the indebtedness plus legal interest not to exceed 25% of the principal amount.
- When a loan policy is issued for construction, the P-8 exceptions must be used.
The P-8 exceptions are as follows:
a. Owner Policy
(1) When an Owner Policy is issued in an amount to include the cost of immediately contemplated improvements, the Policy must contain the following exception in Schedule B:
“Any and all liens arising by reason of unpaid bills or claims for work performed or materials furnished in connection with improvements placed, or to be placed, upon the subject land. However, the Company does insure the Insured against loss, if any, sustained by the Insured under this Policy if such liens have been filed with the County Clerk of _____________ County, Texas, prior to the date hereof.”
AND THE FOLLOWING “LIABILITY” PARAGRAPH:
“Liability hereunder at the date hereof is limited to $_______. Liability shall increase as contemplated improvements are made, so that any loss payable hereunder shall be limited to said sum plus the amount actually expended by the Insured in improvements at the time the loss occurs. Any expenditures made for improvements, subsequent to the date of this policy, will be deemed made as of the date of this policy. In no event shall the liability of the Company hereunder exceed the face of the amount of this policy. Nothing contained in this paragraph shall be construed as limiting any exception or any printed provision of this policy.”
In the event the premium for the Owner Policy is paid in installments pursuant to Rate Rule R-2(b) or (c), the following shall be added to the “Liability” paragraph:
“Notwithstanding the foregoing liability hereunder shall only increase as down-date endorsements are issued pursuant to expenditures made for improvements and as the corresponding fractional premium for the policy and the full premium for the down-date endorsement are paid.”
(2) Upon the completion of the improvements on said property, the owner’s acceptance thereof, and satisfactory evidence to the Company that all bills for labor and materials have been paid in full, the “Liability” paragraph and the exception in Schedule B set out in “a(1)” of this rule may be eliminated from the policy by the issuance of the promulgated Endorsement form containing the applicable promulgated language covering said elimination.