The 'residence premises' dilemma

Insureds move and don't always advise their carriers. (Photo: iStock)

One of the most standard things in a Homeowners policy is the definition of residence premises. It is the foundation for the property being insured, and at first look seems straightforward. It is the one to four-family dwelling where the insured resides, or the two-, three- or four-family dwelling where the insured resides in one unit of that dwelling, or that part of any other building where the insured resides as long as the premises is listed in the declarations page (dec).

It seems easy enough. However, insureds move and don't always advise their carriers. Insureds also generally do not read their policies and do not understand that in order for the property to be covered, the insured must actually be living in it. Until now. ISO has developed endorsements that fundamentally change that definition.

Over time we have had questions on what is a residence premises and when does coverage apply; not only that, but there have court cases involving the same. A question from a subscriber stated that the insured was in a nursing home for nearly five years before she died. The home was unoccupied but someone checked on it regularly. In handling the estate, an antique dealer left a fan running and a fire started at the premises. The estate filed a claim which the carrier denied since the insured was no longer living at the premises. The agent felt that the dwelling was still her residence, even though the insured had been at a nursing home for a number of years. Unfortunately for the estate of the insured, the definition of residence premises is clear; the insured must be living in the property and the property must be listed on the dec. The property may have been listed on the dec, but the insured was not living there.

To further the argument, Webster's Ninth New Collegiate Dictionary defines “reside” as to “dwell permanently or continuously.” The insured was doing neither. Having someone check on the dwelling is not the same as living in it; if a neighbor or relative checks on the house Monday, Thursday, and Sunday, the toaster could short circuit Tuesday night or the pipes could freeze and burst, and not be discovered until Thursday or until the fire engines show up for the fire. Another question involved an insured who inherited a home but hasn't lived there for ten years; his sister lives there. There was a fire and a claim was made, and again denied based on the fact that the insured was not living in the residence. Another situation involved a dwelling that the insured never lived in but rented; again the home burned and a claim was made and rightly should be denied.

ISO has received inquiries from agents about this topic, and there are cases that address this. Shepard v. Keystone Ins. Co., 743 F. Supp. 429, 430 (D Md, 1990), the United States District Court (D. Maryland) found no coverage for fire loss because the insured left the home unoccupied for two years. This makes perfect sense looking at the current definition of residence premises. Bolivar v. Blue Ridge Insurance Company, 1999 WL 989585 (Unpublished Conn. Super.) is similar in that the insureds purchased a home and insured it, but did not live there. The court found that the Homeowners policy was intended to insure premises where the insured resides and that the language was clear and unambiguous.

However in another case, Hill v. Nationwide Mut. Fire Ins. Co., 448 S.E.2d 747 (1994), the Court of Appeals of Georgia found coverage for a fire loss although the insureds had moved out of their home. The court held that the “where you reside” language does not impose residency requirements — but only serves to identify the covered premises. While there are not a lot of court cases on this subject due to agents' concerns, ISO has introduced endorsements to clarify the policy definition. This is where it gets interesting.

HO 06 48 10 15, Residence Premises Definition Endorsement, uses the same definition except that it applies on the inception date of the policy period. As long as an insured is living in the premises when the policy is issued, he can move out the next week, leaving the premises unattended. If it burns to the ground, there will still be coverage. At renewal, however, the carrier can reunderwrite the risk and possibly non-renew. Also at renewal, the change makes it clear that for claims during the renewal period there would be no coverage, since the insured wasn't living in the dwelling at inception.

Another endorsement, HO 06 49 10 15 — Broadened Residence Premises Definition Endorsement, again uses the same definition of residence premises, but allows the insured to designate a starting date and end date that removes the residency requirement. This would be best used when an insured purchases a home but plans extensive renovations before moving in; this endorsement allows him to specify that he will not be living in the home until June, but is requesting coverage to begin in April when the sale and transfer of ownership is complete.

This broadening of coverage is concerning. It opens up carriers to provide coverage for unattended houses on a large scale. The ability of insureds to move out either permanently or temporarily and leave a house randomly looked after by friends, neighbors or relatives when they have a chance, is asking for trouble. While some people will look out for the property diligently, it is still unattended for most of the time, open to break-ins, malfunctioning systems, lightning strikes, or any other peril. Moreover, many people will start out looking after the property diligently, but after a few weeks get distracted by their own lives and fall into a false sense of security that since nothing has happened so far, things are okay. Carriers should consider these endorsements very carefully before adopting them.

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Christine G. Barlow, CPCU, is Executive Editor of FC&S Expert Coverage Interpretation, a division of National Underwriter Company and ALM. Christine has over thirty years’ experience in the insurance industry, beginning as a claims adjuster then working as an underwriter and underwriting supervisor handling personal lines. Christine regularly presents and moderates webinars on a variety of topics and is an experienced presenter.