The Big I calls the “where you reside” language found in ISO standard language the “catastrophic homeowners policy exclusion.”1 On its website, it states:

We encourage the use of this information to inform agents, insurers, regulators, media, and consumers, and, as warranted, to seek resolution of this potential problem.

Most homeowners policies provide coverage for the dwelling on the ‘residence premises.’ The term ‘residence premises’ is typically defined to include the dwelling ‘where you reside.’ The question is, what happens if you no longer (or never) reside(d) there?

The cost to rebuild the average home in the United States is somewhere in the neighborhood of $250,000. For most Americans, this is by far their most valuable asset. In order to protect that asset from loss, most consumers insure the replacement cost of their homes with a homeowners policy. Most homeowners policies cover the dwelling ‘where ‘you’ reside.’

According to some interpretations and courts, if ‘you’ no longer reside in the dwelling, coverage on that structure immediately terminates. If you never resided in the dwelling, coverage may never have attached. This gives rise to a number of circumstances that, if this school of thought is correct, may lead to a catastrophic coverage gap for such homeowners. This is evidenced by both court decisions and real life insurance claim denials.

Each of these is a real-life claim where losses to homes were denied based on a lack of residency, to the complete surprise to the insured and the agent. There is no specific exclusion for damage to a home in most homeowners policies due to a lack of residency, yet there have been court cases where such denials were upheld. Our research has uncovered nine court cases that have concurred with similar claim denials (along with an equal number of judicial decisions overturning claim denials).

A nonresidency situation can arise unexpectedly due to illness or death, military deployment, foreclosures, relocations, etc. Even when it arises due to a routine sale, temporary rental, occupancy by a family member, divorce or separation, or transfer of ownership to a trust, given that there is no clear exclusion for most losses in most homeowners policies, most agents and virtually all insureds presume there is no coverage problem.

…It is up to the reader to decide the best course of action in remedying these types of situations.

We encourage the use of this information to inform agents, insurers, regulators, media, and consumers, and, as warranted, to seek resolution of this potential problem.

A real life situation currently set for trial was noted in yesterday’s post, ‘Residence Premises’ and ‘Where You Reside’ Insurance Coverage Gaps—The Killer Exclusion That Is Not Listed As An Exclusion: Part One, where I referenced a case pending before Harvard educated federal judge Robert L Hinkle. Hinkle and his law clerks must have their hands full with Hurricane Michael claims. In this particular case, he framed the “where you reside” issue as follows:

The policy’s declarations say ‘the residence premises covered by this policy is located at’ the address of the house that was damaged…. But the policy also defines ‘residence premises’ to include ‘[t]he one family dwelling where you reside’ or—not relevant here—a residence where the insured resides in a multiple-unit building meeting specified conditions. The policy says the insurer covers ‘the ‘residence premises’ shown in the declarations.’… Under these provisions, the policy provided coverage for the damage to this house only if it qualified under the policy’s definition of ‘residence premises’—that is, only if the plaintiff resided there. See, e.g., Arguelles v. Citizens Property Insurance Corp., 278 So. 3d 108 (Fla. 3d DCA 2019). A ruling for the defendant on this basis would leave at issue only a claim for damage to personal property.

Similar to our post, What Constitutes a Residence Premises?, where Shane Smith highlighted a policyholder could have two residences and granted coverage, Judge Hinkle found:

The residence-premises clause does not, however, mean the house was covered only if it was the plaintiff’s sole or even primary residence. In the residence-premises definition, the ‘one’ in ‘one family dwelling’ refers to the size of the house, not to the number of houses the insured owns. Nothing in the policy limits coverage to a named insured’s sole or primary residence. Any residence will do. See, e.g., Epstein v. Hartford Casualty Ins. Co., 566 So. 2d 331 (Fla. 1st DCA 1990) (concluding ‘residence’ is ambiguous and does not necessarily refer to a person’s sole or primary residence); Huckaby v. Travelers Prop. Cas. Co. of Am…. (M.D. Ga. Dec. 16, 2011) (applying Georgia law); Chavez v. Encompass Ins. Co…. (N.D. Ga. Jan. 13, 2010)….

He then cited the facts of the case before him and distinguished this situation from precedent that would otherwise deny coverage:

The defendant insured this property beginning in 1986. The plaintiff’s mother owned the property and was the sole named insured until 1999, when she moved out and conveyed the property to the plaintiff. The plaintiff was added as a named insured. But this was not the plaintiff’s primary residence. He lived in a distant city. Even so, the record would support findings that he grew up in this house, it had been in the family for decades, he had succeeded to its ownership, he routinely though not frequently came back and stayed in the house, and he regarded and intended to keep the house as the family homestead—as a permanent residence. The plaintiff allowed his brother to live in the house, but the plaintiff did not rent the house to others or allow activity different in kind than would be expected for any fulltime, permanent resident of a single-family home.

The circumstances thus are much different than in Arguelles, on which the defendant places principal reliance. There the insured not only moved out; he maintained the premises solely as rental property. Here, in contrast, a reasonable jury could find this was a residence of the plaintiff within the meaning of the policy. The defendant is not entitled to summary judgment on this issue.

Moreover, the record would support a finding that the defendant knew the material facts—knew the plaintiff’s primary residence was elsewhere and that his brother lived in this house—but insured the house anyway, thus causing the plaintiff to forgo other arrangements to insure the house. This would support a finding of estoppel and thus provides another basis for denying summary judgment. See, e.g., Crown Life Ins. Co. v. McBride, 517 So. 2d 660 (Fla. 1987). That the defendant initially accepted coverage for the loss from Hurricane Michael is consistent with this view.2

The curious part of this is that I could not find all these facts in the policyholder’s arguments or briefs. The court admonished the policyholder’s counsel for not filing a response to the defendant’s motion for summary judgement and threatened a Florida bar sanction if one was not filed.3 Yet, in a response to a motion a motion in limine, there was persuasive argument and facts supporting an estoppel issue:

As testified by the Defendant’s very own corporate representative, the Defendant’s very own website states that it insures homeowner’s such as the Plaintiff who maintain a non-primary residence.

In this case, and with the Defendant’s knowledge, the Plaintiff used the insured home for no other reason than a vacation and family residence, and at all times for a least a decade before the loss, the Defendant was on notice of the Plaintiff’s residency status and agreed to extend coverage for the residence and the personal property.

As I often say, “it does take a rocket scientist to figure out it is far more profitable for an insurance company to take premiums for years and then if a loss occurs, simply deny coverage rather than pay.”

Judge Hinkle is going to let this go to the jury. But, through his ruling, he has shown the facts needed to be proven to that jury and a path for recovery.

Thought For The Day

Judges are like umpires. Umpires don’t make the rules. They apply them. The role of an umpire and a judge is critical. They make sure everybody plays by the rules. But it is a limited role. Nobody ever went to a ballgame to see the umpire.
—John Roberts
2 Lamonica v. Hartford Ins. Co. of the Midwest, No. 5:19-cv-78 (Order denying summary Judgment) (N.D. Fla. June. 15, 2021).
3 Lamonica v. Hartford Ins. Co. of the Midwest, No. 5:19-cv-78 (Order Requiring Summary Judgment Response) (N.D. Fla. Jan. 13, 2021).