Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

“Vacant” and “unoccupied” are not synonymous. “Vacant” means entirely empty (i.e., lack of animate or inanimate objects), while “unoccupied” means the lack of habitual presence of human beings (i.e., lack of animate objects). This construction has been followed by courts throughout the country.

An Alabama appellate court distinguished the terms in National Sec. Fire & Cas. Co. v. James, 358 So.2d 737 (Ala. Civ. App. 1978). The Court held “[u]noccupied” meant without occupants, that is animate objects; a dwelling is unoccupied when it has ceased to be used as a place of abode or residence by people.” The Court defined “vacant” as empty, without inanimate objects, containing nothing.

The distinction between the words was also addressed by the Kentucky Supreme Court in Thomas v. Hartford Fire Ins. Co., 53 SW 297 (Ky. 1899). In this case, a family left their home but left a portion of their household goods in the building. The Court explained that the house was not vacant, but that occupation ended when the house was no longer the place of abode of any living person.

The difference between the definitions of the terms is critical if a policy contains a “vacancy” exclusion, but not an “unoccupancy” exclusion. It is important for policyholders to know the difference because many insurance claims adjusters do not. This results in regular wrongful denials of insurance benefits.

Perhaps the best example of an unoccupied, but not vacant structure, would be a fully furnished Tampa Bay home owned by a New York resident who resides in Tampa Bay for only three months during the winter. Such a home would be unoccupied for the remainder of the year, but since the house is filled with all the inanimate objects customarily found in a home, it probably would not be classified as “vacant.”

Why the confusion?

Certain policies include a “vacancy” exclusion and others include a “vacant, unoccupied, or uninhabited” exclusion. The latter is much more common and constitutes a much broader exclusion. In fact, some courts allow these terms to be used interchangeably if this specific exclusion is within the policy. Unfortunately, some claims handlers apply the “vacant, unoccupied, or uninhabited” exclusion to the much more narrow “vacancy” exclusion. The results are disastrous, requiring policyholders to fight for the benefits owed under their policies.

The bottom line for all policyholders is to be aware of which exclusion is in their policy. If they choose to leave their building for an extended period of time, it is important to contact the insurer and determine whether the building will remain covered by the current policy or whether they will need to purchase different coverage. 

The 1985 case of Farmer’s Mutual Protective Association of Texas v. Wright, concerned an elderly couple, the Wrights, who owned two homes, one in the town of Rotan (the “Rotan house”) and another about fourteen miles outside of Rotan (the “country house”). The elderly couple lived in the country house until January 1984, when they moved to the Rotan house after they could not find a tenant for it. A fire destroyed the country house in September 1984. After the fire, the elderly couple attempted to recover $40,000 under their fire insurance policy on the country house, but the insurer denied liability based upon the “unoccupied property” clause of the policy.  The clause stated that insurance on an occupied dwelling was automatically terminated six (6) months after the dwelling became unoccupied, unless the insureds notified the insurer and paid a an additional amount to cover the unoccupied property.

Citing Texas Supreme Court precedent, the Court in Wright set forth the following definitions:

A house is ‘occupied’ when human beings habitually live in it as a place of abode; a house is unoccupied when it ceases to be used for living purposes or as a customary place of human habitation.

In Wright, the parties disagreed over whether two houses can be “occupied” at the same time. Finding in favor of the insureds, the Court affirmed Texas precedent by ruling that “[i]n ascertaining the meaning of the words ‘vacant and unoccupied,’ they should not be taken in a technical and narrow sense, but should be taken in their ordinary sense, as commonly used and understood, and, if the sense in which they are used is uncertain, they should be construed more favorably to the insured.”

The Court concluded that there was evidence that the country house was occupied because it was used for living purposes, used as a place of abode, and it was the customary place for human habitation. Mr. Wright went the country house every day to check on and feed their cattle, he took naps there, polished the furniture, kept most of the utilities running, and maintained the lawn twice each month. Moreover, the Wrights would have moved back to the country,if they had found a tenant for the Rotan house. Because of this evidence, the Court of Appeals affirmed the trial court’s implied finding that the country house was occupied at the time it was destroyed by fire and affirmed the trial court’s judgment in favor of the insureds.

Farm Bureau General Insurance Company of Michigan appealed a decision from a trial court in Mecosta Circuit Court in Michigan. In the appeal, Farm Bureau alleged various bases, including that the insured failed to file suit in the time period allowed under the policy and as provided under Michigan’s statute. The appellate court looked at the record of the case and affirmed the lower court’s ruling in favor of the policyholder. Two of the main issues raised in the original litigation were whether the suit was brought during the proper timeframe and when did Farm Bureau effectively deny the claim. Farm Bureau argued unsuccessfully that the claim could not be brought because suit was filed long after the claim was denied. Farm Bureau attempted to dispose of the case by filing a motion for summary disposition. The trial court said the timing of the lawsuit was an issue for the jury to decide, but Farm Bureau failed to re-raise this issue during the trial. The Appellant relied heavily upon the testimony and exhibits which related to the pre-litigation correspondence between the parties. The letters written during the adjustment of the claim and the language contained in the letters were extensively reviewed by the Court and quoted in the recent opinion.

This claim arose out of a fire loss at the Bundy Farmhouse in rural Michigan. The farmhouse was a total loss. The cause of the fire was listed as arson. Interestingly, the court wrote: “The cause of the fire was ‘undetermined’ because it could have been accidental or suspicious. It was thought to have been set by a serial arsonist in the area.”

The claim arose in March of 2003. It was not resolved by Farm Bureau and the insured was forced to file suit and take the case all the way to the jury. The jury responded favorably to the policyholder and awarded the following:

$3,000 for furnishings, $7,000 for other personal property, and $15,000 for lost rents. The trial court issued a judgment on the verdict for $69,500, reflecting the $50,000 policy limit on the building, $10,000 policy limit on lost rents, $3,000 for landlord furnishings, $2,500 policy limits for other personal property, and $4,000 for the stipulated debris removal.

No surprise, the insurance company appealed the ruling for many reasons, and the Court in entered this recent 2-1 opinion.

One of the reasons for the appeal related to whether the insureds filed suit in time under the law in Michigan at the time of the loss. This is quite a fact specific issue because of Farm Bureau’s actions.

The lawsuit against Farm Bureau was filed on October 5, 2004. In Michigan, the statute MCL 500.2833(1)(q) (2004) provided:

(1) each fire insurance policy issued or delivered in this state shall contain the following provisions:
(q) That an action under the policy may be commenced only after compliance with the policy requirements. An action must be commenced within 1 year after the loss or within the time period specified in the policy, whichever is longer. The time for commencing an action is tolled from the time the insured notifies the insurer until the insurer formally denies liability.

The claim was submitted to Farm Bureau promptly after the loss, but the insurance company indicated the claim would not be covered under the policy because:

‘nobody had lived in the house as a domicile since November 2001.” Under the ‘Increase in Hazard’ provision, the policy provided that defendant was not liable for losses occurring ‘[w]hile a described building, whether intended for occupancy by owner or tenant, is vacant beyond a period of sixty consecutive days or is unoccupied beyond a period of six consecutive months’ (Denial letter 1)

In April of 2003, the insured family hired Steve Shipper, the president and owner of Associated Adjuster’s Inc. to assist them as a public insurance adjuster for the fire loss.

I was able to speak to Stewart Shipper, and he said that Farm Bureau was one of the few carriers in Michigan that that apply the “vacancy exclusion” to fire losses. He said most policies exclude coverage for frozen pipes and vandalism if the property is abandoned, but Farm Bureau’s policy is more restrictive and the exclusion even applies to fire losses.

After being hired, Shipper promptly advised the insurance company in writing that Farm Bureau was wrong about the status of the property and provided additional documentation supporting the claim. Shipper sent a proof of loss and a contents inventory to Farm Bureau. Farm Bureau did not accept the proof but wrote back and said “this is not a denial of your claim.” Shipper documented the file and continued to write back to the carrier. Farm Bureau later sent a letter on June 26, 2003, that said “we feel we are justified in our denial of the claim.” (Denial letter 2) Four days later, Farm Bureau said it had reviewed additional information and was still denying the claim. (Denial letter 3)

If Farm Bureau was reviewing information, the previous denials must have been withdrawn. Farm Bureau may have been calling the claim “denied,” but its actions spoke louder than their words.

Shipper was able to convince the insurance company to respond to his letters, and, finally, Farm Bureau visited the loss site with Shipper in October of 2003. During this October meeting, the insurance company asked for utility records and property tax bills. Four days after the meeting, Shipper sent the requested records with a transmittal letter to help Farm Bureau with its claim evaluation. However, the final letter of denial came from Farm Bureau on the same day the records were sent. (Denial letter 4) Obviously, Farm Bureau poured over the tax records and utility bills.

The Court reviewed the facts of the case and looked at the language of the letters. The Court did not have to determine whether the lawsuit was timely filed, but whether the lower court handled this issue the right way. The Appellate Court agreed with the trial court’s determination that the issue was not a matter of law and was an issue of fact. The Court made this determination based on the testimony and documentation of the claim provided by Shipper.

What I found interesting, was just how much detail and information was listed by the court about the public adjuster. The opinion gives us a look into just how important a letter can be and how important it is to write to the insurance company and save the letters they send you. The insurance company argued the denial was an unbroken denial which began in April of 2003 and continued. The Court said “We agree with plaintiffs that the April 2003 denial was withdrawn.” The Court referenced the public adjuster’s affidavit which supported the position that the formal denials were withdrawn each time Farm Bureau decided to investigate/ evaluate the circumstances of the claim. The conduct of the parties, which was established in the correspondence file of the public adjuster, shows Farm Bureau withdrew the denials and continued to investigate the claim throughout most of 2003.

The Court ruled there was a question of material fact regarding this issue, and it seems , that the Court was able to evaluate that this issue because of the paper trail created by public insurance adjuster- Stewart Shipper.

After reading this opinion, I thought it was refreshing to see a court give credit to the public adjuster, rely on the information he provided to reach a favorable decision for policyholders, and explain the PA’s work in the opinion.

You can read the appellate court decision by clicking here.

What is a waiver in Texas? It is an intentional relinquishment of a right actually known, or intentional conduct inconsistent with claiming that right; estoppel prevents one party from misleading another to the other’s detriment or to the misleading party’s own benefit.

If the insurance adjuster does not identify the coverage issue when presented with it and leads the insured into believing that he/she is insured for the loss, and in reliance on it, the insured makes business decisions that result in more of a loss from additional damages to the property or additional out of pocket expenses, has the insurance company waived the exclusions or is it estopped from denying coverage?

In Texas, the Supreme Court explained the law on waiver and estoppel:

If an insurance contract covers certain risks but the policy contains exclusions or limitations of coverage, when the insured makes a claim for loss from a covered risk, the insurer must assert any applicable exclusion or limitation to avoid liability. Ulico Casualty Company v. Allied Pilots Association, 262 SW 3d 773, 778(Tex. 2008); citing to Employers Cas. Co. v. Block, 744 SW 2d 940, 943-44 (Tex. 1988).

Earlier decisions in Texas are consistent with the analysis above. Republic Ins. Co. v. Hope, 557 SW2d 603 (Tex. Civ. App. 1977); T.I.M.E., Inc. v. Maryland Casualty Company, 157 Tex. 21, 300 S.W.2d 68, 73 (1957); Camden Fire Ins. Ass'n v. Moore, 206 S.W.2d 104, 107 (Tex.Civ.App. Galveston 1947, writ ref. n. r. e.).

In Hope, the insured was a builder for 20 years and was in the process of building a home when vandals stole thousands of dollars worth of equipment. Republic argued the vacancy provision, stating the property was not occupied for 90 days, so theft and vandalism were excluded causes of loss. The Court reasoned that when several instruments form one overall contract, the court will assume in its construction of the contract that the parties honestly intended the terms of the various instruments should be effective to accomplish their purposes, and will reconcile apparently conflicting provisions to give effect to all of them, if possible. The Court construed the instruments in question to provide plaintiffs Builders' Risk coverage on the structure of the house at an increasing value as construction progressed until thirty days after construction was completed. Having construed the insurance policy as an “all risk” policy, in failing to plead the vacancy exclusion, the court held Republic waived the vacancy exclusion.

The article correctly noted the generally accepted difference between a structure that is "vacant" and one that is "unoccupied."

“Vacant” or “Unoccupied”?

Courts have long defined “vacant” in insurance policies as meaning empty of inanimate objects — as opposed to “unoccupied,” which they have defined as being void of human habitation. For example, in Myers v. Merrimack Mut. Fire Ins. Co., 788 F.2d 468 (7th Cir. 1986), an apartment building was deemed “vacant” and not merely “unoccupied” in regard to a fire loss. The court found that the loss was excluded where apartments in a building, except for some stoves and refrigerators, were entirely empty for approximately 18 months, lacking both tenants and inanimate objects. (emphasis added)

A very interesting discussion in the article concerned seasonal businesses:

One area that conjures up questions about the meaning of “vacancy” stems from insureds with seasonal businesses. For instance, insureds with motels, restaurants, and shops along the Maine coastline may close their businesses during the off season. Contents, such as equipment, furniture, and other personal property can stay, but all perishables are removed. Properties are winterized by draining pipes and shutting off water and heat.

Carriers know these properties are seasonal and accept the risks. Therefore, in the event of a loss, would these property types be deemed vacant by the policy language on a commercial property policy?

The Insurance Services Office (ISO) CP 00 10, Building and Personal Property Coverage Form states that a building is vacant unless 31 percent of its square footage is used by the building owner to conduct customary operations. As the customary operations of seasonal businesses are to rent rooms and service customers, and those customary operations are not being performed in the months they are closed, the buildings would meet the definition of “vacant” set out in the policy, and those provisions would apply.

I had never thought about that coverage issue as it applies to seasonal businesses. I find unusual but very important topics are routinely discussed in the FC&S and that is why I find the product so important to adjusters and coverage counsel.

The seminar topics and speakers are:

Topic: “Appraisal - Appraising Large Losses”
Presenters: W. Wesley Baldwin of The Baldwin Company and Jonathan Wilkofsky, Esq. of Wilkofsky, Friedman, Karel & Cummins

Topic: “Builder's Risk Program and Coverages” (part 1)
Presenters: Samuel Bergman of Rolyn Companies, Inc.; Stephen R. Figlin, SPPA of Stephen R. Figlin & Associates, Inc., and Peter Kahn of Matson, Driscoll & Damico

Topic: “Builder's Risk Program, Coverages and Adjustments” (part 2)
Presenters: Samuel Bergman of Rolyn Companies, Inc.; Stephen R. Figlin, SPPA of Stephen R. Figlin & Associates, Inc., and Peter Kahn of Matson, Driscoll & Damico

Topic: “Introduction to Building Code Coverage” (part 1)
Presenters: Mark Friedman, Esq. of Wilkofsky, Friedman, Karel & Cummins, and Fred Yutkowitz, Esq. of Fairview-Licht Company, LLC

Topic: “Building Code Coverage Requirements for Repairs” (part 2)
Presenters: Mark Friedman, Esq. of Wilkofsky, Friedman, Karel & Cummins, and Fred Yutkowitz of Fairview-Licht Company, LLC

Topic: “Business Income - Primary Analysis and Authentication”
Presenters: Brad White & Max Flynn of Meaden & Moore, and Hayes Walker, III of Rollins Accounting & Inventory Services

Topic: “Business Income & Extra Expense - Measuring Small Losses” (BI part 1)
Presenters: Don Dragony, CPA of Alex N. Sill Company; Paul McGowan, Jr., CPA, CVA of Matson, Driscoll & Damico, and Ronald Papa, SPPA, of National Fire Adjustment Company, Inc.

Topic: “Business Income & Extra Expense - Extended BI Coverages, Application and Calculation” (BI part 2)
Presenters: Don Dragony, CPA of Alex N. Sill Company; Paul McGowan, Jr., CPA, CVA of Matson, Driscoll & Damico, and Ronald Papa, SPPA, of National Fire Adjustment Company, Inc.

Topic: “Business Income & Extra Expense - Manufacturing Losses” (BI part 3)
Presenters: Don Dragony, CPA of Alex N. Sill Company; Paul McGowan, Jr., CPA, CVA of Matson, Driscoll & Damico, and Ronald Papa, SPPA, of National Fire Adjustment Company, Inc.

Topic: “Commercial Property Forms and Endorsements”
Presenters: Dennis Perlberg, Esq. of Perlberg & Speyer, LLP, and David Karel, Esq. of Wilkofsky, Friedman, Karel & Cummins

Topic: “Deposition ABC's - Preparation is Key to Survival”
Presenters: Mary Kestenbaum Fortson, Esq. of Merlin Law Group and William F. Burke, Esq. of Adler, Pollock & Sheehan

Topic: “Ethics”
Presenters: Nicole S. Figlin, SPPA of Stephen R. Figlin & Associates and W. Richard Burr SPPA of Young Adjustment, Inc.

Topic: “Homeowners Coverages”
Presenters: Randy Goodman, SPPA of Goodman-Gable-Gould/AI and Joel Gumbiner, Esq. of Gumbiner & Eskridge, LLP

Topic: “Insured's Cooperation and Duties - How to Prevent a Problem”
Presenter: Robert P. Rutter, Esq. of Rutter & Russin, LLP

Topic: “Science of Roof Damage Claims”
Presenters: William F. Merlin, Esq. of Merlin Law Group and Timothy Marshall of AT Designs, Inc.

Topic: “Subrogation Opportunities Do's and Don'ts”
Presenter: Jean Niven, Esq. of Merlin Law Group

Topic: “The Adjuster as an Expert Witness”
 Presenters: Dave Pettinato, Esq. of Merlin Law Group and Jonathan Wilkofsky, Esq. of Wilkofsky, Friedman, Karel & Cummins

Topic: “Vacancy and Occupancy Defenses - Its Many Faces”
Presenters: Tina Nicholson, Esq. of Merlin Law Group and Ronald Reitz, CPPA of Quality Claims Management, Inc. 

Dr. Therese M. Vaughan, CEO of the National Association of Insurance Commissioners, will give the keynote address. Dr. Vaughan was Iowa State Insurance Commissioner from 1994 through 2004 and also the Robb B. Kelley Distinguished Professor of Insurance and Actuarial Science at Drake University.

This conference is open to the entire insurance community. Insurance company adjusters, brokers, agents, attorneys, accountants, and public adjusters are invited. I expect the First Party Claims Conference will be an excellent resource and provide practical tools and answers to a variety of insurance related matters. If you adjust roof claims, you simply cannot afford to miss that presentation with its all-star speakers.

Information on the education program (topics & speakers), exhibitor/sponsor opportunities, conference registration, and hotel accommodations is available at www.firstpartyclaims.com