HOMEOWNERS INSURANCE COVERAGE
CHAPTER ONE - INTRODUCTION
Homeowners Insurance policies are carried by the vast majority of home owners, and similar plans are used for renters and landlords. This text will furnish information as to what the policy is and how it operates, and will do so in a little different manner than most textbooks of this type.
This type of insurance policy is rather “wordy”, but it has to be, as it is a combination of Fire and Extended Coverage, and a Liability policy, and it addresses the needs of home owners in both of these important categories. How it addresses these needs is determined by two means: (1) by the policy provisions and (2) by subsequent court cases. This text will address both.
The policy provisions of the ISO Form 3, the most widely used Homeowners insurance form, and provisions of “Other company” will also be presented. The “Other company” form is used by one of the largest providers of Homeowners insurance, with a few minor changes where other companies that do not use the ISO form, may make exceptions of importance. These provisions have been written so that the average homeowner can understand them (if they would take the time to do so). However, it befalls the insurance agent to read and understand all of the details, and then to pass this knowledge on to the policyholder who will (probably) never read the policy until a claim arises, and probably not even then. This can be boring and laborious reading, particularly to agents who already are well versed in Homeowners insurance.
But, the various provisions will also be presented and explained by using actual court decisions, verdicts and judgements, all relatively recent. Most court decisions are quite lengthy, so the “meat” of the decision is presented with a brief discussion of the information affecting the decision. Literally hundreds of cases have been studied, and those shown in the texts are the most important to the study of the policy, and how it actually works. Obviously, laws are different in the various states, so the rendering of courts facing nearly identical situations, may vary. In those cases where there is disagereement between rulings in courts in different states, an attempt has been made to determine which of the rulings more closely follow the majority of the states. If this is not apparent, then the court is now quoted but there is a notation that courts disagree in this case, or in some cases, a court case that just seems to be out-of-place will be quoted in order for the student to be aware that there are always two sides to each case so the outcome can never be predicted with 100% certainty.
On ocassion, the same court decision may be used to illustrate different policy provisions. These are avoided as much as possible as many court decisions cover more than one provision application, but are not repeated to avoid redundancy. However, where it is considered that a particular court decision illustrates more than one provision quite well, the court ruling or a portion of it, may be repeated elsewhere in the text.
It is noted in the text that certain policy provisions have no supporting or illustrative court decisions, as there were none that could be found of recent vintage that pertained to those particular provisions. There may be an explanation or discussion of the provision, or there may not, as some of the provisions are so simple that any further discussion would be redundant.
“CONSUMER APPLICATION” sections are generally court cases that furnish more detail and that prove a point that would be of interest to most insureds in that situation. They are so marked and outlined. The court cases are identified in the Bibliography.
Specific points of interest or definitions are boxed and prefixed with a pointing finger F .
SPECIAL NOTE: The format used in this text book whereby the policy provisions are quoted, as described above, followed by pertinent court decisions, where and if applicable, can cause some confusion unless one very important point is kept in mind: The court decisions pertain to whether there is coverage afforded under the Homeowners policy.
The guilt or innocence of the plaintiff and/of defendant is of no consequence for the purpose of this text. In some cases, and it will be so noted, the insurer has asked for summary judgement, which is a judgement granted on a claim about which there is no genuine issue of material fact and upon which the movant (the party asking for the summary judgement) is entitled to prevail as a matter of law. In “plain English,” the insurance company has, in nearly all cases, declined to provide representation or to pay the claim because of the policy provisions, which, in the majority of the cases, the provision is a stated EXCLUSION within the policy. The insured has initiated suit to make the insurer pay for the claim and/or pay for legal representation and other court costs. The court must then decide whether the policy provision allows the insurance company to refuse to represent the insured in the matter presented.
The court will (1) determine that the insurance company is right in their interpretation of the policy provisions, and does not have to provide any services to the insured; (2) determine that the policy provision does not exclude the Homeowners policy coverage; (3) the wording is “ambiguous” and therefore the Exclusion(s) does not apply; (4) the facts are such that determination can only be made by a jury, or (5) make some other ruling, such as made by an appeals court, in which case the earlier court decisions will stand, or is reversed, or sent to another court.
When a case is appealed to the “appellate” court (an appeals court), the appellate court will review the findings and (1) return it to a lower court stating that the lower court has misinterpreted the law; (2) redetermine the lower court finding, or (3) affirm the lower court judgement.
So, as the student reviews the various decisions that are used to illustrate or define a particular policy provision, to avoid confusion, the student must not look upon these decisions as “guilty” or “innocent”, or “right” or wrong.” The decisions only pertain to how policy provisions are interpreted by the courts.
HISTORY
During the period of time when civilization moved from an agrarian society to an industrial society, goods and methods of production of the population became more concentrated. With this concentration, the possibilities of losses increased due to situations beyond the control of the owners; primarily by fire, wind and water. While farmers have always suffered such losses, they compensated for part of the cost by helping each other in time of need. The “barn - raising” of rural America was well documented as part of history, particularly in situations where property was destroyed because of fire.
As the industrial society expanded, protection against losses was very conservative, originally covering only losses by fire. Policies were written by hand covering each situation differently. As more and more businesses required this protection, more standardized wording became available, and with financial institutions investing in commercial ventures, insurance had to be provided to protect the investors interests. This further pushed the burgeoning insurance industry to standardize coverage’s and policy provisions.
Marine Insurance is considered as one of the oldest (if not the oldest) types of insurance, as ships and their cargoes were protected against losses at sea by consortiums of wealthy persons who “underwrote” the protection by signing “under” the contract and noting their share of the risk. Throughout the years certain words used in the contracts became standardized and recognized by law as having specific meanings. To this day, many marine policies contain language that may seem archaic, such as referring to risks as “perils”, but are used because of the legal interpretations that have evolved.
Other forms of insurance have changed so that they are easier to understand by the consumer, and most of the antiquated language is no longer present.
As soon as protection from fire perils was available, protection against windstorm, hail, water damage, and other such risks was created. These coverage’s became known as “property insurance.”
Soon legal recourse against someone wronged by another was considered an insurable situation, and the idea of protection against liability grew into what is now called “casualty” or “liability” insurance. Many insurers became “Property and Casualty Insurers.” Others preferred to continue to cover only one type of peril, such as fire insurance, and these companies became known as “monoline” companies, and policies that cover only one type of peril, became known as monoline policies.
MONOLINE INSURANCE POLICIES
“Monoline policies” and “Monoline Insurance Companies” faced an early problem as perils became more complex and particularly with business and commerce, they were faced with an increasing number of situations that were determined to be insurable, as well as the number of types of commercial businesses also increased, each type with its own peculiarities and situations unique to their business. With the increase in insurance situations, the number of insurance policies needed to cover each contingency increased dramatically, to the point where many customers had many policies. The sheer number of such policies became overwhelming, with a variety of coverage’s provided by a variety of insurers, frequently represented by a variety of insurance brokers and there were duplication of some coverage’s, and with no coverage provided for other risks.
MULTILINE POLICIES
It soon became apparent that the only solution was to “package” policies. Therefore, the “multiline” policy was born, which is several of the risks previously insured under separate policies, now packaged into one policy. Since this affects commercial policies much more than personal policies, such as Homeowner insurance, this is not the place to go into detail as to how this was accomplished and the advantages of Multiline policies and companies. Suffice it to say that there are few Monoline insurers today.
The Homeowners policy is a “Fire” policy and a “Liability” policy, packaged together, as will be discussed in detail later. In fact, the Homeowners policy that combined these coverages is a relatively new phenomenon. For many years, homeowners would have to purchase a Fire and Extended Coverage policy, and also purchase a Personal Liability policy, sometimes from different insurers. After World War II, with the explosion of affordable homes and the G.I. Bill which allowed veterans to purchase a home with no down payment and a very low interest rate, insurers soon flooded insurance departments with requests for combination policies.
THE ROLE OF THE INSURANCE SERVICES OFFICE
It soon became apparent that a standardized Homeowners policy form was very necessary, as not only did the returning veterans become history’s largest group of home purchasers, they also became the most mobile. The insurance departments of the various states needed to agree on what coverages should be in the policies, how much should be charged for the coverages, etc.
While there are several independent filings of Homeowners policies, most of the package policies for homeowners were written under a program first introduced in 1984, later updated to the HO-91 program, introduced by the Insurance Services Office (ISO).
The Insurance Services Office is a statistic - gathering organization located in New York. While it initially was involved in providing advisory rates to its subscriber members, it has since withdrawn from providing rates, and now provides policy forms and endorsements and manual rules for its members. It should be noted that subscriber members are free to use whatever policy forms and rates they choose, and this text will use an ISO form for discussions of provisions, and will also use a form that is a compilation of other insurers forms. There are other forms available, but the differences would be minute or they would probably not be approved by the Insurance Departments. The American Association of Insurance Services, a competing firm, provides similar services to approximately 400 regional insurers.
The Homeowners insurance policy is simply a package policy that combines (1) coverage against the insured's property being destroyed or damaged by various perils, and (2) coverage for liability exposure of the insured.
Homeowners policies cover both individuals as well as property. In addition to the insured, those covered include his or her spouse, their relatives, and any others under 21 who are residents of the insured's household.
HO POLICY - SECTION I (PROPERTY COVERAGE)
This section provides coverages in four sections:
1. Coverage A (Home)-the structure of the home (basic contract amount). From this amount, is where other property coverages in Section I derive the base from which is expressed as a percentage of Coverage A.
2. Coverage B (Garage or Appurtenant Private Structures)-structures not attached to or part of the home, covered up to 10% of the basic home structure.
3. Coverage C (Contents or Personal Property)-coverage of 40 to 50% (depending on the form selected) of the structural coverage of the home (Coverage A) for the contents or personal property in the home; and coverage of up to 10% is afforded to contents away from the home. For example, a home whose value is $100,000 would have coverage on the contents of $50,000 (assuming 50% contents coverage); away from home, contents coverage would be up to $5000.
4. Coverage D (Additional Living Expenses)-coverage if the home is damaged or destroyed by a covered peril and the insured must seek temporary lodging. Reimbursement is 10 to 20% of the structural coverage of the home (Coverage A), depending on the form.
All four of these property coverages (A, B, C, and D) are offered through one of the following forms:
1. Form No. 1 (Basic or Standard)--coverage for fire, lightning, windstorm, hail, explosion, smoke, theft, vandalism, malicious mischief, riot, civil commotion, glass breakage, vehicles, and aircraft.
2. Form No. 2 (Broad)-coverage for a broader spectrum of perils than under Form No. 1.
3. Form No. 3 (Special)-provides that Coverage A (Home), Coverage B (Garage or Appurtenant Private Structures), and Coverage C (Contents or Personal Property) are insured on an ALL RISKS basis. There are a number of exclusions under Form No. 3.
4. Form No. 4 (Contents Broad Form)-coverage only for the contents of a dwelling (Coverage C) and additional living expense (Coverage D) as the result of the perils listed in Form No. 2. It does not cover damage to the structure of an apartment building, its garages or appurtenants and is often called the “renters” policy.
5. Form No. 6 (Condominium Unit Owners Form)-provides the same coverage as Form No. 4 but extends coverage for damage to additions and/or alterations that the unit owner may have made inside the unit. Coverage goes into effect as an excess amount above that insurance (if any) that the condominium association may have.
Numerous endorsements can be added to each one of the above forms to increase the limits of coverage and the properties insured. For example, specified property such as jewelry, furs, silverware, and guns can be added through a valuable personal articles endorsement. Also, an inflation guard endorsement (reflecting increases in the cost of construction) can be added to Coverage A (which automatically increases Coverages B, C, and D, since they are expressed as a percentage of Coverage A).
An important provision, and one that will be discussed in detail later, is that in case of a loss, the insured is obligated to take certain actions: They must notify the company (or agent) immediately; and if the loss is due to theft, they must also notify the police immediately. If credit cards are stolen, they must notify the credit card company immediately. One of the most important requirements is to protect the property from further damage or loss.
Generally, there is an 80% coinsurance requirement. The insured must carry insurance on a replacement cost basis of at least 80%. For example, a home is worth $150,000 (i.e. it would cost $150,000 to replace the home), and a fire does $50,000 damage.
If the insured carries $100,000 of insurance, only $44,667 will be paid. This amount is arrived at by the following formula:
Amount of Insurance Carried x Loss = Insured Reimbursement
80% Insurance to Value
Therefore, the replacement cost basis would be:
$100,000 x $50,000 = $41,666
$120,000
If, however, the insured had carried an 80% insurance to a value of $120,000, then the total loss of $50,000 would have been to the following formula:
$120,000 x $50,000 = $50,000
$120,000
HO POLICY-SECTION II (LIABILITY COVERAGE)
This section provides coverage under 3 sections:
1. Coverage E (Personal Liability)—This coverage is provided in the event a suit is brought against the insured because of bodily injury and/or property damage (defined in considerable detail in this text) from the acts (or non-actions) of the insured. It also covers the insured's spouse, relatives of the spouses, and others under age 21 under the insured's care. Most personal acts are covered, regardless of where the acts occurs.
There is also provision for defending the insureds regardless of the reasonableness of the suit, and the costs of defense are in addition to the limits of liability in the policy. The basic liability limits is normally $100,000, but frequently are increased substantially. However, if the total amount of liability paid by the insurer equals or exceeds the limit of liability, and legal costs are an additional $100,000, then the insurer would pay their limit, plus the $100,000 for legal costs.
2. Coverage F (Medical Payments to Others)-This is provided for reimbursement of reasonable medical expenses incurred (a) by the insured (and individuals as defined in Coverage E, above); and (b) for injuries sustained by a third party either on or off of the insured's premises as a result of the activities of the insured and others covered. Providing emergency medical care to an injured third party does not make the insurer admit liability, and the injured person still maintains their legal rights to sue the insured by accepting the medical aid.
3. Coverage G (Damage to Property of Others)-as with Coverage F, the insured is reimbursed for expenses incurred up to $250 regardless of legal liability for damage to the property of a third party.
The insured and covered residents of the household make payment out of a feeling of moral responsibility for the damage to the property, which may have the result of a liability suit not being brought against the insured.
ELIGIBILITY
Forms 1,2,3 and 8 are available to owner-occupied one and two family dwelling with no more than two boarders or roomers per family, although some insurers will write coverage on 3 or 4 family structures.
Incidental occupancies for office, professional, private school or studio use are permitted in the dwelling (or related structure) as long as there is no other business conducted on the premises.
Exceptions are made for certain situations in which a dwelling is not occupied by its legal owner, such as a property owner who maintains title until a purchaser can arrange for a mortgage. The occupants that are renting the home with a contract to purchase the home, would be the insureds in this case. The titleholder (title owner) is an additional insured in respect to the dwelling and other structures, and the liability arising from the ownership of the property.
Where there are co-owner occupants of a 2-family dwelling, they may be insured under the same Homeowners policy, however only one is named as the Insured. The second person is an additional insured in regards to the building, other structures and liabilities. The second (additional insured) would not have insurance on his/her personal property, and would have to have a separate policy for that coverage.
A joint owner who does not reside in the dwelling may be named as an additional insured for the dwelling, other structures and liability coverages related to the described dwelling.
Secondary residences, such as vacation homes, may be insured under the Homeowner form even if they are not occupied year around.
HOME FINANCING
There are basically two methods of financing a home. The most common way is to obtain a mortgage from a source, individual or firm, who then maintains an interest in the home until the mortgage obligations have been fully satisfied. The party that provided the mortgage is called the “mortgagee” and the homeowner is the “mortgagor.”
The interests of the mortgagee must be protected. For example, if there were a fire that totally destroyed a $200,000 home that had a mortgage of $100,000 remaining, who would receive the $200,000 claim payment? If the property owner received the whole amount, they could pay the mortgage off, and keep $100,000, which would be equitable. But what if they didn’t want to pay off the mortgage? They stand to lose their $100,000. Therefore, in Homeowners insurance, the agreement between the insurer and the mortgagee actually create a contract within a contract by a mortgagee clause.
The mortgagee clause is an attachment to a property insurance policy or Homeowners policy that protects the interest of the mortgagee in the mortgaged property. If the property is damaged or destroyed, the mortgagee is indemnified up to his or her stated interest in the property.
In those other situations where a home is purchased under contract, and where the resident pays installments to the owner similar to paying rent, until they acquire the title. Usually, the payment of a certain amount will be considered as a down payment, and then a normal mortgage would be issued. Occasionally, the entire amount of the contract must be paid before title passes, so in effect, there is no mortgage. In either event, the person who still holds the title to the property may be named as a second insured on the Homeowners policy in respect to the dwelling and appurtenant private structures (but not personal property). The contract purchaser would carry a Homeowners insurance policy and would be designated as the insured.
A Homeowners policy can be written to cover a dwelling in the course of construction.
Notice that HO-4 is intended for insuring the personal property and liability exposures of persons who live in rented apartments and in mobile homes. HO-6 is designed for condominium unit-owners and cooperative apartment owners for their personal property and liability exposures.
Cooperative apartment owners actually own the apartments they occupy, but they are stockholders of the building and occupy their resident unit under the terms of a “proprietary lease.” The building, therefore, is insured by the corporation, and in the name of the corporation, under a Commercial Property policy. The tenants (and stockholders) can cover his personal property and improvements/betterments under either HO-4 or HO-6.
AGREEMENT & DEFINITIONS
AGREEMENT
ISO. We will provide the insurance described in this policy in return for the premium and compliance with all applicable provisions of this policy.
Other Company. We agree to provide the insurance described in this policy. You agree to pay premiums when due and comply with the provisions of this policy.
CONSTRUCTION OF POLICY
Language used in a Homeowners policy: Construction of an insurance contract is not required or even permissible when the language is "plain, unambiguous, and capable of only one reasonable interpretation"; and therefore, the courts have no right to extend more coverage than contracted for by "strained construction." This court interpretation of this provision is widely held, and while the “strained construction” is not strictly “legalese”, the meaning is quite clear.
Intentional Loss: It has been held that a Homeowners policy "intentional loss" exclusion (discussed later) encompassed the "named insured's" spouse, the court held that while ambiguous policy exclusions will be construed in favor of the insured, generally speaking, courts would not recognize "tortured constructions" of a policy that seized on "every word as a possible source of confusion"; rather, they would construe the entire policy and not single out separate provisions at the expense of disregarding other provisions.
MISCOMMUNICATION AS TO PROPERTY COVERED OR COVERAGES ISSUED
Bill purchased a duplex with a rental unit in the rear, and applied for Homeowners insurance. When the insurance agent came to his house to take the application, he mistakenly thought that the rental unit in the back belonged to another person, and when Bill referred to the “rental unit”, the agent misinterpreted that to be the duplex unit that Bill did not occupy.
Six months later, an electrical fire destroyed the rental unit. The insurer refused to cover that unit as it was not on the policy. The insured took the situation to court and the court ruled that the error was a mistake and since the insured had informed the agent, the insured was entitled to reformation (re-writing) of the policy to cover the rear rental unit upon its destruction. 1
Mistake in coverage: When an insured obtained a policy issued for more coverage than requested, he did not owe additional premium on policy, despite failure to return policy. Historically, if an insurer makes an error, it usually is resolved in favor of the insured.
F If there is a question as to coverage in an insurance contract and it can be shown that the insurance company is at fault in any way, or if the wording can be construed to be ambiguous in any way, or not clear to the average person, the court will give the benefit of the doubt to the insured.
PAYMENT OF PREMIUM
In recent years, the premium payment method of automatic bank withdrawal has become quite popular for personal insurance. More frequently than insurers like to admit, there can be errors in drafting the payments from the bank account, mostly due to individuals not informing their insurers when they change bank accounts, etc. Insurance companies have learned to usually “take the blame” if the automatic premium payment is not paid on time, regardless of who actually is at fault.
Actions of insurer on nonpayment of premiums: Courts have held that the insurer could not rely on nonpayment of premiums to deny coverage, where the insurer itself had breached its agreement with the insured by failing to withdraw, as agreed, monies from the insured's bank account to pay for the premiums.
DEFINITIONS
ISO. In this policy, "you" and "your" refer to the "named insured" shown in the Declarations and the spouse if a resident of the same household. "We," "us" and "our" refer to the Company providing this insurance.
Other Company. "You" and "your" mean the "named insured" shown in the Declarations. Your spouse is included if a resident of your household. "We," "us" and "our" mean the Company shown in the Declarations.
Bob & Marie owned a home and both were “insureds” under the meaning of their Homeowners policy. Bob was self employed and owned a shoe repair business, but most of his money came from his gambling operation out of his business’ back room. With casinos going up everywhere, his gambling business (that Marie knew nothing about) had troubles. In order to get a few bucks in the bank (without letting Marie know what he was doing); he set fire to the house while Marie was visiting her mother.
The fire department called the fire “suspicious” and later investigation discovered that it was probably arson. The insurance company demanded that the insured, Bob, answer questions about the fire (this requirement is discussed later in more detail) under oath, and also, since their investigator was made aware of the gambling business, the insurer asked questions about that.
The insured, Bob, refused to answer any questions or to assist in the arson investigation in any fashion. Marie found out about the problems and the arson suspicions, and kicked Bob out. Marie then filed the claim with the insurance company as a coinsured under the policy. The insurer denied coverage to Marie, even though she was innocent, so off to court they went. The insurer asked for a summary judgement (a judgement by the judge without a trial) which was granted, but the appeals court found that the concealment clause (discussed later, simply the requirement that the insured cooperate with the insurer in claims investigation) unambiguous and not against public policy, so the court affirmed summary judgment in favor of the insurer, which had denied coverage to innocent insured based upon refusal of coinsured (Bob) to answer questions concerning arson fire and other potential criminal matters. Policy definition of word "you" did not require both of the named insureds to breach concealment clause before coverage was voided. 2
BODILY INJURY
ISO. 1. "bodily injury" means bodily harm, sickness or disease, including required care, loss of services and death that results.
Other Company. 1. "bodily injury" means bodily harm, sickness or disease. This includes required care, loss of services and death resulting therefrom. Bodily injury does not include any of the following, which are communicable: disease, bacteria, parasite, virus, or other organism, any of which are transmitted by any insured to any other person. It also does not include the exposure to any such disease, bacteria, parasite, virus, or other organism by any insured to any other person.
The definition of “bodily injury” has many aspects that can arise during discussions of other policy provisions. For purposes of clarification, this definition will be discussed later throughout the text and can be better understood with a part of a larger picture.
This is a good time to notice that this particular provision in the ISO form has been enlarged by other companies. This will be noticed at several places in this text. Generally, when an insurer deviates in wording from those of an ISO model, this would indicate that the intended wording in the ISO form has not been sufficient for its purposes, or it has been subject to court interpretations other than those that expected by the insurer(s). With the public and political interest high on certain sicknesses, illnesses and diseases, it is apparent that the insurance companies have found it practical to embellish upon the rather short definition of “bodily injury” contained in the ISO form.
Emotional distress “bodily injury?” Claim for emotional distress triggers duty to defend under "bodily injury" coverage if the emotional distress is caused by accident or occurrence within meaning of the policy. Insured's failure to pay building contractor for renovations to their house did not constitute "accident" or "occurrence" within meaning of the policy, since fact that it was withheld voluntarily did not inexorably place the consequences of that conduct outside the scope of meaning of an "accident" or "occurrence."
BUSINESS - INSURED
d. with respect to any vehicle to which this policy applies:
(1) persons while engaged in your employ or that of any person included in 3a or 3b above; or
(2) other persons using the vehicle on an insured location with your consent.
Other Company. 4. "insured" means you and, if residents of your household:
a. your relatives;
b. any other person under the age of 21 who is in the care of a person described above.
Under Section II, "insured" also means:
c. with respect to animals or watercraft to which this policy applies, the person or organization legally responsible for them. However, the animal or watercraft must be owned by you or a person included in 4.a. or 4.b. A person or organization using or having custody of these animals or watercraft in the course of a business or without permission of the owner is not an insured;
d. with respect to any vehicle to which this policy applies, any person while engaged in your employment or the employment of a person included in 4.a. or 4.b.
John owned a nice home and his girlfriend, Sandy, and her son by a previous marriage, Ben, moved in with John. John always provided Ben with a place to stay, food to eat, clothes, and other necessities of life.
Ben was 18 and after a severe snowstorm, he shoveled the sidewalk of a cranky neighbor. The neighbor later slipped on a patch of ice on the sidewalk, requiring medical attention. The neighbor sued John who filed a claim with his insurance company.
The insurer denied the claim stating that (1) Ben was not related to John, (2) Ben had a part time job and could and did purchase his own car, stereo, etc., and (3) Ben is now 18.
The court disagreed, stating that Ben was the child of insured's cohabitant, even though 18 years old, was "in care of insured" within policy terms and was an "insured," even though child provided own support, as named insured provided child with basic necessities of life-food, clothing, and shelter. 3
Insured’s resident child: In another similar situation, where a policyholder’s son lived in the household at the time of the insured incident, he was considered as an “insured” even though he paid room and board.
Relative: Some courts have also held that the word “relative” is interpreted to mean those related to named insured by consanguinity (blood) and excluding those by affinity (marriage), and the term “relative” does not include an insured’s mother-in-law simply because she is the mother-in-law.
RESIDENTS
The intent of a relative: The intent of being a resident in a household can be legally questioned, and for instance, the evidence of a named insured's son-in-law's financial condition is probative and relevant to the issue of his intent, or lack thereof, to become a "resident" of the insured's household.
Residence of stepdaughter: Interestingly, the stepdaughter of the insured, and the insured did not have custody of the child, shot another person with a BB gun. When Homeowners insurance was called into play, it was determined by the courts that she was not a resident of insured’s household, even though she had lived in the household for 5 years and returned to the house shortly after the shooting. To some, with the limited information about this situation, this may seem strange, but there was an “insured” that the insurance company had not contemplated.
A widowed daughter with a small child, moved in with her parents after her husband’s death. They abandoned a prior residence and the family shared living facilities with the meals usually prepared by the grandmother. The grandparents cared for the child while the mother worked, and the mother paid only a small token payment for “room and board.” The child was killed under circumstances where a person, not a relative or a resident of the household, could probably collect under a Homeowners policy on the grandparents home, with the Grandfather as the named insured.
The insurance company correctly refused to pay as the granddaughter was considered as a “relative’ and therefore is considered as one of the insureds. 4
Members of the Armed Services: For those who are members of the armed services, and do not have another permanent residence, they are considered as being residents of their parent’s household.
Child resident of father but primary residence with mother elsewhere: A minor son was covered as a resident of the father's household even though the son's primary residence was with his mother, from whom the father had been divorced for many years. The son maintained a bedroom in the father's garage and kept clothing, baseball card and matchbox car collections, toiletries, and jewelry in his father's Staten Island home; had his own key to the house; and received mail there.
HOUSEHOLD
Determining residence: In order to determine whether a person is a resident of a particular household with respect to insurance coverage is to determine the individual's attachment to a group or to a person, rather than to a building. Further, the question of whether a person is a resident of a household is largely one of intent and that a person's intent is determined by his expressions at times not suspicious, and his testimony, when called on, considered in the light of his conduct and the circumstances of his life. Any other judgements on whether a person(s) is a member of a household would be determined by a court and/or jury.
Resident of grandparent’s house, therefore is an insured: For purposes of determining whether grandson was an "insured" under the policy, grandson, who had moved into grandmother's house, was a member of grandmother's "household" and was therefore covered under grandmother's homeowners insurance policy, even though grandmother had moved out of her house due to health problems.
Residence of a relative: The mere residence of a relative in the home of an insured, as a matter of law, does not constitute the relative a member of the insured's household. It must be demonstrated that the parties established a familial relationship and enjoyed at least some significant prerogatives of family life, including the sharing of companionship and some degree of joint domesticity. Where the record indicated only that the insured's sister resided in the same house and paid rent on a weekly or monthly basis, issues of fact concerning whether they were residents of the same household must be produced to make a final determination on the basis of exclusion for bodily injury to an insured
Familial relationship: It must also be demonstrated that the parties established a familial relationship and enjoyed at last some significant prerogative of family life, including the sharing of companionship and some degree of joint domesticity.
RELATIVES
Friend and companion: A close friend and companion who lived with named insured at the insured location for 20 years is still not considered to be an "insured," since he (she) is not a relative of named insured. "Relative" is defined as either through blood (consanguinity) or through marriage (affinity).
Resident relative: A relative of an insured, who lived in upper unit of house originally designed as a two-family residence, is a "resident relative" under a Homeowners policy where all relations shared meals and expenses and lived as single household. The relative's contribution to household expenses, whether characterized as "rent" or not, does not place the person outside of the definition of "insured."
Resident provision unambiguous: While it may seem that the definition of “relative” can be rather arbitrary, to the contrary, the courts have stated that a Homeowners policy, which excluded liability coverage for bodily injury to any insured and which defined the insured as family members who were living in same household as the named insured, was unambiguous and enforceable and did not discriminate on the basis of marital status.
CHILDREN
An insured cared for her great-nephews and great-niece for eight weeks, during which the children were sexually molested by the insured's son. The insurer argued that the children were "residents" of the insured's household during their eight-week stay and were therefore "insureds" under the policy definition. The court found that since the children were not transients, they manifested more than a mere physical presence in the household, they were completely dependent on the insured for all their needs, and since they were to stay indefinitely, the children were "insureds" within the meaning of the policy 5
The exclusion sets forth three distinct classes of individuals, injury to whom is not covered: (1) the policyholder; (2) the policyholder's resident relatives; and (3) minors in the care of the policyholder or policyholder's resident relatives, irrespective of the minors' residence. Insurer had no duty to defend action by infant injured in fireworks accident while on an overnight visit to his late grandmother's house where his divorced father and uncle lived. Exclusion did not require that minor be a resident of the household. 6
Son-in-law living in vacation home of insured’s: Grant of declaratory judgment action in favor of the insurer was affirmed, finding that the insured's son-in-law was not a member of the insured's household while living in the insured's vacation home and, therefore, was not covered under the insured's liability policy.
SPOUSAL RELATIONSHIPS
“Common-law” marriages: It has been determined that if the named insured and one victim lived together as husband and wife, even though there had been no formal ceremony and the children, who were the other victims, considered the named insured to be their father, as a matter of law, the victims were "insured persons.”
Proving residency: Frequently it is necessary to look at the “whole” picture in determining whether a person is a “resident” under a Homeowners policy. For instance, in order to determine whether a brother was a "resident" of his sister's household for purposes of coverage for personal property lost in fire under Homeowners policy, a court must take into consideration whether he was living under same roof, whether relationship between brother and sister was close and intimate, and whether intended duration of stay was likely to be substantial; and in addition, age, separate residence, self-sufficiency, and frequency of stay must be considered as factors.
A four-year-old boy that was run over by his mother while she was operating riding a lawn mower at the grandfather's house, was an insured under parents' Homeowners policy, because he was their minor child and resided with them. Policy exclusion for bodily injury to an "insured" is rarely found to be ambiguous - it makes no distinction between injuries occurring on or off the insured premises-and does not violate the reasonable expectations of the insureds. 7
An adult son who wrecked a borrowed snowmobile while vacationing at the Canadian cabin of his parents, was not an insured under their Homeowners policy since he maintained his own separate residence. Therefore, the insurer had no obligation to pay a judgment entered against their son for damage to snowmobile.
Policy exclusion for property damage to property used by or in care of an insured would operate to avoid coverage even if the son were an insured. 8
A twelve-year-old son who committed sexual assaults on a young child for whom he was baby-sitting, was an insured under his parents' Homeowners policy, since he was a relative and a resident of their household at the time of incidents. The son's conduct precluded coverage for himself and parents under policy because of intentional acts exclusion and sexual molestation exclusion, which carefully excluded these risks based upon acts of "any insured," despite severability clause. 9
OTHER
A guest passenger in a pickup truck was injured in an automobile accident and her parents filed suit against the Homeowners insurer for the mother of the driver. The driver of the vehicle, in which the plaintiff's minor daughter was a passenger, was the insured under a Homeowners policy. The policy contained a clear and unambiguous exclusion for bodily injury caused by an insured arising out of the use of a motor vehicle owned or operated by any insured. Therefore the court ruled that any of the driver's liability was excluded and there was no duty to defend. 10
INSURED LOCATION
ISO. 4.
"insured location" means:
a. the residence premises;
b. the part of other premises, other structures and grounds used by you as a residence and:
(1) which is shown in the Declarations; or
(2) which is acquired by you during the policy period for your use as a residence;
c. any premises used by you in connection with a premises in 4a or 4b above;
d. any part of a premises:
(1) not owned by an insured; and
(2) where an insured is temporarily residing;
e. vacant land, other than farm land, owned by or rented to an insured:
f. land owned by or rented to an insured on which a one or two family dwelling is being built as a residence for an insured;
g. individual or family cemetery plots or burial vaults of an insured; or
h. any part of a premises occasionally rented to an insured for other than business use.
Other Company.
5. "insured location" means:
a. the residence premises;
b. the part of any other premises, other structures and grounds used by you as a residence. This includes premises, structures and grounds you acquire while this policy is in effect for your use as a residence;
c. any premises used by you in connection with the premises included in 5.a. or 5.b.;
d. any part of a premises not owned by an insured but where an insured is temporarily residing;
e. vacant land owned by or rented to an insured. This does not include farm land;
f. land owned by or rented to an insured on which a one or two family dwelling is being constructed as a residence for an insured;
g. individual or family cemetery plots or burial vaults of an insured;
h. any part of a premises occasionally rented to an insured for other than business purposes;
i. 500 acres or less of farm land (without buildings) rented to others.
EFFICIENT CAUSE
It may be a little premature to discuss the “efficient cause” definition, however it will become apparent that as legal decisions and ramifications are determined and discussed in this text, many of the pertinent situations and cases that illustrate, define, or prove a point of coverage, involve more than one section of the policy.
F Efficient cause is the cause that produces effects or results; an intervening cause which produces results which would not have come to pass except for its interposition, and for which, therefore, the person who set in motion the original chain of causes is not responsible.
Court definition of efficient cause: In respect to Homeowners insurance, a court produced a definition that is widely held, which states that in order to determine whether a loss is covered under the property portion of a Homeowners policy in a multiple cause case where there is a concurrence of different causes, the finder of fact must determine the efficient cause of the loss. The efficient cause of loss is the cause that sets others in motion and operates more immediately in producing disaster.
Insured location: In respect to “Insured location,” an insurer has an obligation to pay, up to policy limits, for measures necessary to stabilize dwelling in the manner adequate to the changed condition of the land if a non-excluded peril damages or threatens structure. Also, the property covered under the policy is clearly limited to damage to the dwelling, unless land and landscaping is damaged by one of the enumerated perils.
Bentley has an All-terrain Vehicle (ATV) which he allowed his 12 year-old son to ride in an adjoining vacant lot owned by a neighbor. The son had an accident while riding the ATV and Homeowners insurance coverage was called into play. It was determined that the phrase "on an insured location" in an exception to the motorized land conveyance exclusion could reasonably be interpreted as referring to the location where the conveyance was stored or kept rather than unambiguously referring only to the place of the accident. For that reason, the exclusion did not preclude coverage for injuries sustained in this situation. 11
Residence Premises: And to clear up another residency question that arises occasionally, where the policy defined "residence premises" as "the one- or two-family dwelling, or other structures and grounds; or that part of any other building where you live, shown as the 'resident' premises on the Declaration," this language does not require the insured to "reside" at the premises in order for the dwelling to be covered.
Property used in connection with residence: Those pesky ATV’s again – in a separate situation, guests who rode an all-terrain vehicle throughout the insured premises and onto neighbor's property were not entitled to recovery under the insured's Homeowners policy for injury sustained when riding across neighbor's hayfield because the hayfield was not "used in connection" with the insured's residence premises.
An individual known to the insured sustained injuries from the use of a motorized vehicle, a specifically excluded injury. The exception to the exclusion for off-road recreation vehicles required that they be used at an insured location and be owned by the insured. Although the vehicle was owned by the insured, the location of the accident was not an "insured location." Land, which contained among other things, trailers, a storage shed, an automobile bridge, an outhouse, and a picnic table, was not "vacant." The policy stated that "vacant" land owned by the insured was an "insured location." 12
MOTOR VEHICLE DEFINED
ISO. No provision.
Other Company.
6. "motor vehicle," when used in Section II of this policy, means:
a. a motorized land vehicle designed for travel on public roads or subject to motor vehicle registration. A motorized land vehicle in dead storage on an insured location is not a motor vehicle;
b. a trailer or semi-trailer designed for travel on public roads and subject to motor vehicle registration. A boat, camper, home or utility trailer not being towed by or carried on a vehicle included in 6.a. is not a motor vehicle;
c. a motorized golf cart, snowmobile, or other motorized land vehicle owned by an insured and designed for recreational use off public roads, while off an insured location. A motorized golf cart while used for golfing purposes is not a motor vehicle;
d. a motorized bicycle, tricycle or similar type of equipment owned by an insured while off an insured location;
e. any vehicle while being towed by or carried on a vehicle included in 6.a., 6.b., 6.c., or 6.d.
Moped: It has been well determined that a licensed moped operated by the minor son of the insured was not a "motor vehicle" within the motor vehicle exclusion of the policy. It has been further determined that a moped is not a “motorized land vehicle” within the motor vehicle exclusion of the policy.
Motorcycle: Interestingly, for those who believe that a “moped” is just a small motorcycle, courts have ruled that a motorcycle is a “land motor vehicle” within the motor vehicle exclusion of the policy.
Truck in Dead Storage: A truck that is being repaired is not considered as being in “dead storage”, thus when gasoline being poured into the carburetor caught on fire and burned an individual, the burn injuries were within the motor vehicle exclusion of the policy.
PROPERTY DAMAGE
ISO. 6.
"property damage" means physical injury to, destruction of, or loss of use of tangible property.
Other Company.
8. "property damage" means physical damage to or destruction of tangible property, including loss of use of this property. Theft or conversion of property by an insured is not considered to be property damage.
Property Damage: As with most of the wording of the Homeowners policy, “property damage” seems pretty straightforward. However, the insureds (and insurers) can expand and question the “common sense” definitions of this coverage, with the results that frequently the courts have to decide what is “property damage” and what is not. For instance, where an insured was sued for negligence and negligent misrepresentation in connection with the sale of property, the insurer had no duty to defend or indemnify because the lawsuit did not seek damages for "bodily injury" or "property damage" caused by accident and thus was not an "occurrence" as defined by the policy. Where the insured was sued for negligence and negligent misrepresentation during sale of property, the insurer had no duty to defend or indemnify the insured because the lawsuit did not seek "property damages" as defined by the policy.
Attorney mishandling estate: In this declaratory judgment action, the court held that alleged economic loss and diminution of value of assets of an estate does not involve property damage. Therefore, an alleged breach of a fiduciary duty is not considered "property damage" and does not fall within the coverage of a homeowners liability insurance policy that defines "property damage" as physical damage or destruction to tangible property. There was no physical damage or destruction to any tangible property in this case.
Bodily Injury or Property Damage required: In another situation that ended up in court, an insured was sued for rescission, fraudulent failure to disclose during sale of property, negligent misrepresentation, and negligent infliction of emotional distress, the insurer had no duty to defend or indemnify the insured because the lawsuit did not seek damages constituting "bodily injury" or "property damage." Similarly, a court held in that case, that an insurer had no duty to defend or indemnify its insured in a lawsuit seeking damages for misrepresentation, failure to disclose, and negligence during a sale of property because the underlying lawsuit did not seek damages that constitute "bodily injury" or an "accident."
Alleged Misrepresentations in sale of property: (To further show that anyone can sue anyone else for anything), an insured was sued for alleged misrepresentations in connection with sale of property. The insurer had no duty to defend or indemnify the insured because the lawsuit did not seek damages that arose as a result of an "occurrence" or "property damage." (The policy also specifically excluded liability for claims arising as a result of any contract or agreement except those directly relating to the maintenance or use of the insured location – discussed later in this text).
Defamation of Character: Attempts have even been made to make a Homeowners insurance policy pay for defamation of character, claiming such defamation was “property damage.” The ruling, sensible, was that the alleged defamation was certainly not property damage because a person's reputation is, at most, intangible property.
F Liability coverage for "property damage" under Homeowner policies requires physical injury or destruction of tangible property.
RESIDENCE EMPLOYEE
ISO.
7. “residence employee" means:
a. an employee of an insured whose duties are related to the maintenance or use of the residence premises, including household or domestic services; or
b. one who performs similar duties elsewhere not related to the business of an insured.
Other Company.
9. "residence employee" means an employee of an insured who performs duties, including household or domestic services, in connection with the maintenance or use of the residence premises. This includes employees who perform similar duties elsewhere for you. This does not include employees while performing duties in connection with the business of an insured.
Johnson is a “distributor” for a multi-level marketing company that sells household materials. It is necessary that he maintain a rather large inventory, which he stores in his garage. Sam, who lives across town, works for Johnson by delivering supplies from Johnson’s garage to the purchaser, and is paid by Johnson. Since the business has its “ups-and downs,” Sam also keeps the grass mowed and bushes cut around the house. He is paid for the yard work by being given a generous wage for delivery of materials.
Sam is not considered as a “residence employee” in this situation. 14
ISO.
8. "residence premises" means:
a. the one family dwelling, other structures, and grounds; or
b. that part of any other building; where you reside and which is shown as the "residence premises" in the Declarations.
"Residence premises" also means a two family dwelling where you reside in at least one of the family units and which is shown as the "residence premises" in the Declarations.
Other Company.
10. "residence premises" means the one, two, three or four-family dwelling, other structures, and grounds or that part of any other building where you reside and which is shown in the Declarations.
The term "residence premises" as used in Homeowners policy was not ambiguous under circumstances where the insured had not lived in the subject house for over three years, the insured had only visited the house occasionally, the house was in an obvious state of disrepair, and the water and telephone service had been disconnected.
Insurer was not estopped [Estoppel arises when one is concluded and forbidden by law to speak against his own act or deed] from asserting the defense of non occupancy when it allegedly knew that the insured had a new mailing address after renewal and cancellation notices were returned because the conduct of the insurer cannot enlarge or extend coverage as defined in the policy or create coverage. 14
Insured does not need to reside at the premises: At this point of the discussion, the mere fact that where the policy defined "residence premises" as "the one- or two-family dwelling, or other structures and grounds; or that part of any other building where you live, shown as the 'resident' premises on the Declaration," this language does not require the insured to "reside" at the premises in order for the dwelling to be covered.
Coinsured may move while other insured remains in their residence: The insured's relocation to another state while her spouse remained at her premises did not terminate her coverage under the homeowners insurance policy. Since a special residency provision required that the named insured or spouse must live at the premises, and since the insureds were married at the time of the fire loss, this provision was applicable.
CONSUMER APPLICATION
The mortgage holder attempted to contact the insureds when they fell behind in their payments, only to find that the ex-wife had disappeared (after executing a quitclaim deed in favor of the ex-husband) and the ex-husband was incarcerated. The mortgage holder then claimed under the insureds' policy for a subsequent fire loss to the premises. The claim was denied because of the mortgage holder's failure to notify the insurer of the change in occupancy. The court framed the issue as whether the change in occupancy would have precluded recovery by the named insured, given that the policy covered only a dwelling used as "residence premises." The carrier contended that the insured premises did not constitute the "residence premises" because neither insured had "resided" there for eight months prior to the fire. The court held that the term was ambiguous as to whether the incarcerated husband's claim could be denied and that the carrier's proposed interpretation was contrary to statute. 15
Vacant residence: The HO policy required that the property be a place currently occupied by the insured as his home. However, the home had been vacant for a period of two years before its destruction by fire – so therefore there was no loss. Even though the insurer (according to the insured) should have been aware of this situation, and if they didn’t do then, what they should (could) do then (good example of “estoppel”), the coverage cannot be extended because of the rule of estoppel. Most importantly, the insured had the means available to him to determine that he was required to live at the property. 16
Moving from residence to nursing home: The “residence premises” would also seem “straight-forward”, but situations do arise. A court interpreted this to be ambiguous when an insured had been admitted to a hospital with end-stage congestive heart failure and from there entered a nursing home four months before there was a fire in the home of the insured. The question was whether the insured was any longer an occupant of the dwelling in a third-party claim for liability arising out of a fire. Provision in Homeowners policy concerning the meaning of the term "occupant" was interpreted by court to be ambiguous.
STUDY QUESTIONS
1. The most popular Homeowners insurance form is
A. HO-3.
B. HO-12.
C. HO-2001.
D. HO-Fire & Liability.
2. An insurance policy that is written to provide coverage for one particular peril, is
A. a Multi-peril policy.
B. a Property insurance policy.
C. a Multiline insurance policy.
D. A Monoline insurance policy:
3. Under a Homeowners policy, there is generally a coinsurance requirement of _______
replacement cost coverage.
A. 80%
B. 100%
C. 10%
D. unlimited
4. When a home purchaser takes out a mortgage on their home, the purchaser is called
A. the mortgagee.
B. the mortgagor.
C. the Vendor.
D. the property trustee.
5. Bill is building a new home and has a mortgage commitment with the First National Mortgage Company. Which of the following statements is true?
A. A Homeowners policy cannot be written while the property is under construction.
B. A Homeowners policy can be written to cover a dwelling in the course of construction.
C. The mortgage company may purchase a Homeowners policy.
D. The contractor may purchase a Homeowners policy.
6. When a court decides that an exclusion in a policy is “ambiguous,” they will be construed
A. in favor of the insurance company.
B. in favor of the inured.
C. as if they did not exist, and the entire provision will be stricken.
D. according to the results of a deposition of the actuary who originated the provision.
7. _______ _________ means sickness or disease, including required care, loss of services and death that results.
A. Personal catastrophe
B. Property Damage
C. Bodily injury
D. Intensive care coverage
8. Which of the following resident of the (insured’s) household, is NOT considered as an insured under a Homeowners policy?
A. Elderly grandparent living at the insured’s dependent upon the insured.
B. Other persons under the age of 21 and in the care of another resident.
C. A spouse
D. A sister visiting for 2 months.
9. The cause that sets others in motion and operates more immediately in producing disaster, is a definition of
A. Liability relationship.
B. Efficient cause.
C. Bodily injury.
D. Catastrophic movement.
10. Bob marries Sally. Sally has a 20 year old son who does not like Bob. He agrees to stay in Bob’s house but he will pay room and board and have a private entrance to the house. Is he considered an “insured” under the Homeowners policy, and why?
A. No, as he is an only a relative of the coinsured, Sally.
B. Yes, as he is under age 21 and is a relative of the insureds.
C. No. He is under age 21, but pays room and board.
D. No. The house is Bob’s, so only Bob’s relatives by blood are insureds.
ANSWERS TO STUDY QUESTIONS
1A 2D 3A 4B 5B 6B 7C 8D 9B 10B