a. The dwelling on the “residence premises” shown in the Declarations, including structures attached to the dwelling;

Now consider the following claim, summarized from the facts of a multitude of actual cases:

Mom and Dad own a home. They have put down a substantial payment to procure space in a highly sought-after retirement community with a fixed “move-in” date. With optimistic dreams of recovering that payment via the sale proceeds of their current home, they contract with a Realtor. Unfortunately, the real estate market in their area slumps. Move-in time at the retirement community arrives, and still no sale. Adult daughter tells parents to head on to retirement village; she'll move into the house to keep it maintained and occupied until their realtor finds a buyer.

A major fire severely damages the home. Adequate homeowner insurance in the name of Mom and Dad is in full force, automatically renewed annually via direct bill/escrow.

The carrier denies the claim.

Their insurance agent assures the daughter and parents there must be some mistake; a simple misunderstanding over vacancy and unoccupancy. Sure, Mom and Dad have moved out, but the daughter has moved in. And furthermore, as a resident relative, the daughter is even an insured under the policy!

Unfortunately, the actual form language sides with the carrier. While the agent is absolutely correct in his vacancy/unoccupancy argument, even if he'd been wrong, neither of those would have affected a fire claim under a residential policy. No, the carrier is denying the claim under an entirely different provision of the policy. And even though that provision is crystal clear, it is seldom given more than a moment's thought once an agent leaves licensing school.

A crystal-clear basis for claim denial commonly overlooked by agents? Yep, I'd say that qualifies as a coverage turkey!

Where lurks this “gobbler” provision from the HO forms? Look back at the previous policy provision quoted above, and note the key requirement for determining if a particular dwelling falls under coverage A: it must be located on the “residence premises.” Here is the pertinent wording from the ISO HO definition:

“Residence premises” means: a. The one-family dwelling where you reside; (emphasis mine)

Now do you see the carrier's reasoning? Note those three key words: ”where you reside.” If English teachers everywhere will forgive me, the only key question to complete our journey is “Who's you?” Ah, grasshopper, that one is easy. In the HO definitions section you will find the standard ISO wording:

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.

Let's take a closer look.

1. To be covered, dwelling must be located on “residence premises.”
2. “Residence premises” is where “You” reside.
3. “You” is specially defined to include Named Insured and resident spouse only.
4. Named Insured on applicable HO policy is Mom and Dad; does not include unnamed daughter.
5. Mom and Dad reside at the retirement community, not in the damaged dwelling.
6. Since no “You” resides at this specific dwelling, it is not a “residence premises” and does not fall under Coverage A.
7. Therefore, any claim for property damage to this dwelling is validly denied under this policy, regardless of peril, premium payment or well-intended actions of daughter.

What's really insidious about this is how many agents, even when made aware, adamantly refuse to accept the clear policy language. “That's not the intent!”, they cry. Or “No court would ever enforce that against an innocent insured!”, often paired with a common codicil, “No court in OUR state would ever enforce…”

Ah, but they have, they do and they will. My good friend Bill Wilson, head guru of the IIABA Virtual University, has documented numerous court cases that have come down squarely on the carrier side in similar cases. As we've discussed in previous articles, even if courts don't favor certain policy provisions, they are reluctant to overturn clear wording. There have indeed been courts who found differently, leaning on an “innocent insured” rationale. But if it were that clear that one set of courts is wrong while the others are right, I doubt Bill would have named this specific issue to be one of the top priority ISO forms changes needed.

One hopes ISO will see clear to throw out this particular language, or at least clarify the issue. If the intent is to force a change to a DP form once the Named Insureds move out, make that rule. If the intent is to force the addition of an endorsement with extra premium to reflect the perceived change in exposure, create that endorsement and premium. Unpredictable real estate markets, retirement community availability and expense, job scarcity and numerous other scenarios where named insureds need to move on while retaining coverage of a former-but-still-owned home makes this a potential turkey with widening potential for negative impact.

Bottom line: Do you really want to sell insurance — or assure insureds after a claim — that something is definitely true when even the courts are flying off in unpredictable directions? This is one turkey that needs to be stuffed.