A number of questions posed by coverage practitioners recently spiked about residency requirements found in the vast majority of standard homeowners forms. The spike and questions were the result of a particular Order denying a summary judgement.¹ The case is still pending in Florida with trial set August 2, 2021. While that case is relatively new, the policy language which acts as a killer exclusion causing a hidden insurance coverage gap has been a topic of great controversy in the insurance industry for well over a decade. An article was published in an agents’ education journal twenty years ago about the “where you reside” wording found in homeowners insurance policies.

The Independent Insurance Agents and Brokers of America, known as the Big I, is a fantastic resource for insurance agents. In 2009, eight years after the article published in the agents’ education journal, Bill Wilson, the author of When Words Collide: Resolving Insurance Coverage and Claims Disputes, wrote a Big I white paper on this topic: ‘Where You Reside’ – The ‘Where’s Waldo?’ Catastrophic Homeowners Policy ‘Exclusion’ That Could Bankrupt Your Insureds. His abstract describes the issue:

Most homeowners policies, including the ‘ISO standard’ HO-3 examined in this paper, cover damage to the dwelling on the ‘residence premises’ shown in the policy declarations. The term ‘residence premises’ is defined to include the dwelling ‘where you reside.’ According to some interpretations and court decisions, if the named insured and/or resident spouse no longer reside in the dwelling, coverage on that structure immediately terminates. If this school of thought is correct, this gives rise to a number of circumstances that may lead to a catastrophic coverage gap for such insureds. The purpose of this paper is to explore these circumstances, the rationale for/against coverage, and possible solutions to avoid potentially catastrophic coverage gaps.

Wilson noted 16 different common situations where “nonresidency” can arise:

• Nursing Homes
• Relocations
• Foreclosures
• Rentals
• Child Occupies Parents’ Home
• Parent Occupies Child’s Home
• Divorce
• Illness or Infirmary of Insured
• Death of Insured
• Trusts
• Homes Owned by LLCs and Corporations
• Seller Remains After Closing
• Seller Moves Out Before Closing
• Buyer Moves In or Takes Possession Before Closing
• Renovations / Homes Under Construction
• Vacancy and/or Unoccupancy

His 2009 census of cases lists 18 cases with an exact 50/50 split of coverage decisions:

NO COVERAGE

• Bryan v. United States Fire Ins. Co. (Texas, 1970)
• Fisher v. Indiana Lumbermens Mutual Ins. Co. (Texas, 1972)
• Doyle v. Members Mutual Ins. Co. (Texas, 1984)
• Epps v. Nicholson (Georgia, 1988)
• Shepard v. Keystone (Maryland 1990)
• Nancarrow v. Aetna Casualty & Surety Co. (Arkansas, 1991)
• Georgia Farm Bureau Mutual Ins. co. v. Kephart (Georgia, 1993)
• Heniser v. Frankenmuth Mutual Ins. Co. (Michigan, 1995)
• Ivanov v. Phenix Mutual Ins. Co. (Maine, 2007)

COVERAGE

• O’Neil v. Buffalo Fire Ins. Co. (New York, 1849)
• Joyce v. Maine Ins. Co. (Maine, 1858)
• German Ins. Co. v. Russell (Kansas, 1902)
• Reid v. Hardware Mutual Ins. Co. (South Carolina, 1969)
• Insurance Co. of North America v. Howard (Oregon, 1982)
• Farmers Ins. Co. v. Trutanick (Oregon, 1993)
• FBS Mortgage Corporation v. State Farm (Illinois, 1993)
• Hill v. Nationwide Mutual Fire Ins. Co. (Georgia, 1994)
• Lundquist v. Allstate Ins. Co. (Illinois, 2000)

Wilson argues for coverage and provides the following for his basis:

1. “Where you reside” are words of description, not a warranty of continuing occupancy.
2. The “where you reside” language is not clear and conspicuous.
3. Insureds have a reasonable expectation of coverage given the limited exclusions that apply to Coverage A and the implications of other policy provisions.
4. Owner-occupancy is an eligibility issue, not a coverage issue.
5. ISO programs have precedents that supersede the ownership-occupancy/residency requirement.
6. Any perceived increase in risk of loss is immaterial or inconsequential compared to the potential for catastrophic loss.
7. It is onerous, unconscionable, and against public policy to exclude all losses to a dwelling on the basis that there is a minor increase in risk for some perils.

In a 2015 Big I article, ISO Files Most Important Homeowners Change in 40 Years, Bill Wilson updated the status of the controversy and again argued against the exclusionary impact of the “where you reside” language:

For the record, OUR interpretation does not agree with that of a number of adjusters and courts. Numerous courts have held that, to be enforceable, an ‘exclusion’ must be ‘clear and conspicuous.’ We believe that coverage for the primary asset owned by a family should not hinge on three words in a definition referenced from an insuring agreement. There is nothing ‘clear and conspicuous’ about this language that would lead an insured to believe that an interruption of residency would suspend coverage on the dwelling. From the standpoint of public policy, it makes little sense that, if the insured is operating a meth lab and blows up his home, there is coverage under his HO policy, while there is no coverage for a tornado destroying her home the Friday evening an 80-year-old homeowner learns that she will be confined to a nursing home henceforth.

Courts that have found FOR coverage have generally interpreted the ‘where you reside’ language to be ‘words of description,’ not a warranty of occupancy or a condition for coverage. Additional rationales for our continued position on this are outlined in our original white paper. And, for what it’s worth, in a past Property Loss Research Bureau publication, PLRB also took the position that this language does not preclude coverage for damage to a dwelling.

While he noted that optional endorsements would be placed in the marketplace removing the “where you reside” language from the definition of “residence premises,” he warned of continued problems and what leaders in the insurance agent community planned to do to stop these scenarios from happening in the future:

As indicated earlier, this resolution is not perfect or exactly what we believe is in the best interest of consumers, agents, and the industry at large. However, it is a reasonable compromise that we believe can serve as a starting point for a more complete market-based solution in the coming year. Still, there are caveats to this change that must be acknowledged.

First, even with a mandatory endorsement, there is still a potential for a coverage gap at policy inception for carriers who interpret the ‘where you reside’ language to be a residency requirement for coverage. For example, on new business it is customary to provide a policy (or, more likely, a binder) effective on the date of the loan closing. However, as is often the case, the insured may not move into the home and begin residency on the date of closing. As a result, for carriers with a restrictive interpretation of ‘where you reside,’ a Broadened endorsement should likely be used at policy inception and the insured made to understand the importance of revising the termination date on the form if move-in takes longer than expected.

Second, since renewals are usually processed a month or two in advance, even with a notice form, it’s possible that an insured might unexpectedly discontinue residency (e.g., medical conditions, unanticipated work relocation, military deployment, etc.) between completing the renewal paperwork and renewal policy inception. Again, it is critical when placing or renewing insureds with carriers that hold to a restrictive interpretation of ‘where you reside’ that the insured fully understand the importance of providing notice of nonresidency. In such instances, then Broadened endorsement may be used until (if necessary), the account needs to move from a Homeowners to a Dwelling Fire policy.

Third, when we originally presented this issue to ISO for consideration, one of the points we made with regard to our belief that this is an eligibility, not a coverage, issue is that ISO’s own eligibility rules permit the use of an HO policy on a home under construction. Obviously, no one can reside in a home under construction, so our argument is that a literal reading of the ‘where you reside’ language couldn’t preclude coverage because evert unoccupied home under construction would have illusory coverage, something courts have uniformly found to be prohibitive. But, for insurers who hold the restrictive interpretation of ‘where you reside,’ the Broadened endorsement should be attached at inception for the duration of construction.

…

In the months prior to October 1, we will be approaching ACORD about the need to amend any existing ACORD forms and develop an industry-standard residency ‘notice’ form.

We will be issuing a news release on this change in the near future and making contact with various industry and consumer media. We recommend that agents do the same in their local communities and communicate this change to their customers.

We plan to initiate a dialog with independent agency carriers about adopting the Broadened language that eliminates the ‘where you reside’ language. We continue to believe that the restrictive interpretation of this language is detrimental to consumers and to the image of the insurance industry, and we believe that residency has always been, and should continue to be, an eligibility and underwriting consideration for new and renewal business, not an unclear and inconspicuous ‘exclusion.’

This blog has also posted on this topic. In 2016, Shane Smith wrote, What Constitutes a “Residence Premises?” That post highlighted a finding that a policyholder could have two residences and granted coverage. A 2018 post, No Coverage for Property that was not Insured’s “Primary Residence” as Described Under the Policy, analyzed a Maryland case where the court ruled that no coverage existed to an insured for a loss to her property that was not her primary residence.

Ed Eshoo is a standard fire insurance policy expert. He wrote a 2018 post, Does a Residence Restriction Violate the Standard Fire Insurance Policy? He summarized the court’s holding:

The named insured…sued, contending that the residence restriction violated the Iowa standard form. The district court agreed, in the process rejecting Auto-Owners’ arguments that the residence restriction was the ‘substantial equivalent’ of the vacancy and increased hazard provisions in the Iowa standard form, which provisions were virtually identical to the Standard Fire Policy’s vacancy and increased hazard provisions. The district court reasoned these provisions did not limit coverage to the extent that the residence restriction did. The district court explained as follows.

First, the vacancy provision did not apply because the son lived in the insured premises at the time of the fire. Second, even if the vacancy provision applied, there was no substantial equivalence between the vacancy provision in the Iowa standard form and the residence restriction in the Auto-Owners policy; the vacancy provision precluded coverage only if the insured dwelling remained vacant for over sixty days, whereas the residence restriction could preclude coverage even when the property was not vacant or if it was vacant for less than sixty days. Finally, Auto-Owners failed to provide sufficient evidence indicating how a close family member occupying the insured dwelling increased the hazard or the risk of a fire loss. Because it limited coverage more so than the Iowa standard form, including its exclusion provisions, the residence restriction in the Auto-Owners policy impermissibly broadened the standard form’s exclusions and provided less coverage than the minimum required by statute. Coverage was therefore afforded for the fire loss.

In 2020, Dan Ballard wrote a post, Question of Residency is Determined by Jury. He noted the factors which the court found which would be considered by the jury on a case about “where you reside” may go to trial:

The court also weighed other factors that supported residency such as the insured receiving mail at the property address, providing the property address for income tax purposes, being the only person with keys to the property, and consistently referring to the property as ‘my house’ when testifying.

Stating that the term ‘residence’ carries a more transitory meaning than the term ‘domicile,’ the trial court ultimately concluded that the evidence on the record was sufficient to allow a reasonable jury to conclude that the insured resided at the property at the time of the fire.

Part Two of this discussion will be about the Lamonica case, noted in the first paragraph. I find it interesting because the insurance defense attorney for Hartford in that matter is none other than attorney, not author, Bill Wilson, whom I favorably blogged about this week in Great American Agrees to Pay Champlain Towers South Property Insurance Claim and More to Be Discussed on Tuesday @2 with Chip Merlin.

Thought For The Day

My main residence is Baltimore. I have an apartment in New York, one in San Francisco, and I live in a rental in Provincetown in the summer.
—John Waters, filmmaker
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¹ Lamonica v. Hartford Ins. Co. of the Midwest, No., 5:19cv78 (N.D. Fla. June 15, 2021).