Feral cats uncover ambiguous language in rental dwelling policy

The Arizona Court of Appeals has addressed the increasingly common language property insurers use in policies to preclude or limit the coverage for animals or damage caused by animals.

The Goldbergers were the owners of a residential rental property with an insurance policy for that property through State Farm Fire and Casualty Company (State Farm). The policy was a rental dwelling policy. The Goldbergers filed a claim for $75,000 worth of coverage after their tenant “allowed” feral cats to “access” the property and cause “accidental damage.” State Farm denied the claim, citing an exclusion in the policy for damage caused by “domestic animals.” The Goldbergers disagreed and sued State Farm, alleging breach of contract and insurance bad faith.

State Farm argued that the denial was appropriate under the policy exclusion, which provided that accidental losses caused by “birds, vermin, rodents, insects or domestic animals” were not covered. The insurer filed a motion to dismiss.

The superior court granted the motion, reasoning that a cat, feral or not, is a domestic animal. The feral cats were acting as if they were domesticated, and a reasonably intelligent insurance consumer would understand the exclusion unambiguously apply to damage caused by feral cats. The Goldbergs filed an appeal.

On appeal, the court began by concluding that the term “domestic animals” as it was used in the policy was ambiguous because there were at least two conflicting interpretations that were both reasonable. The court noted that under a species-based definition, the animal’s species is dispositive, meaning that its current habitat and whether a human provides care for the animal is irrelevant, but under an individualized definition, the opposite is true. For example, a nontraditional animal such as a snake, monkey, or bear in a home as a pet could not be considered a domestic animal under a species-based definition because those are wild animals, but a bear could fall under an individualized definition if it was living with and being cared for by a human.

In order to resolve this ambiguity, the court examined the “transaction as a whole,” including the policy’s language, the policy’s purpose, public policy considerations, the intent of the parties, and the reasonable expectations of the insured.

First, the court looked at different definitions of “domestic animal” and found that although dictionaries vary on whether they adopt an individualized or species-based definition, more dictionaries tend to lean toward an individualized definition. The court then considered exotic pets like tigers, bears, and snakes and found that “adopting a species-based definition would create a nonsensical outcome resulting in coverage even though the insured was in the best position to prevent damage.” The court then explained that the individualized definition “yields the most reasonable construction” because it encourages the insured to prevent damage that an animal would cause by controlling the animal they willingly bring into the home.

The court then determined that public policy considerations favor the individualized definition that provides greater certainty to insureds about the coverage they buy, and the species-based definition is interminate by nature and leaves insureds to speculate about the coverage they have.

The court finally concluded that the term “domestic animal” as used in the policy was ultimately not ambiguous. Instead, the term includes specific animals that are subject to the “care, custody, and control of a person.” The court reversed the trial courts decision granting State Farm’s motion to dismiss, explaining that the allegation that the cats at issue were “feral and were allowed to access the property by the tenant” standing alone did not show that the tenant exercised sufficient care custody and control over the cats so to render them “domestic animals.”  So, a cat is not a domestic animal simply because a cat is typically considered to be a pet, but a cat is a domestic animal when it is kept and cared for by a person.

Insurers need to be precise when drafting exclusions, particularly when those exclusions concern animals. When an exclusion uses non-specific terms, those terms should be defined in the policy in order to prevent a suit like the one the Goldbergers brought against State Farm.

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