Q
Our client's home is insured on an HO-3. He holds the mortgage on another house, where his son lives. His son is buying the house and making the payments to his father. This property is insured on a DP-3, with no contents coverage. Our client loaned his son some personal property—mainly furniture—which is located at the rental property. There was a small fire last month, and damage occurred to the dwelling as well as to much of the furniture. Coverage for the dwelling is not the issue here, but coverage for the furniture is.
We think there should be 10 percent away from premises coverage for the furniture, but the insurer disagrees and says the loss is not covered.
What are your thoughts on this?
New Jersey Subscriber
A
The ISO HO-3 states that the insurer's “limit of liability for personal property usually located at an 'insured's' is 10 percent of the limit of liability for Coverage C, or $1000, whichever is greater.” When examining this statement, one must consider the meaning of the word “residence.”
Language in a policy is to be given its ordinary meaning, if not otherwise defined. According to Webster's Collegiate Dictionary (Tenth Edition), a residence is “the place where one actually lives as distinguished from one's domicile or a place of temporary sojourn.” The insured does not reside in the rental property; his son does. When viewed in this light the rental property is not the insured's “residence,” so the full amount of coverage C becomes available.
On the other hand, there is another way to view this situation which appears to be closer to what the policy drafters intended; that is, the rental property constitutes a business. Whether or not the father holds the mortgage and the son is simply repaying it, the property is still a rental dwelling. In this instance, the limit for business property away from the residence premises applies.
This premium content is locked for FC&S Coverage Interpretation Subscribers
Enjoy unlimited access to the trusted solution for successful interpretation and analyses of complex insurance policies.
- Quality content from industry experts with over 60 years insurance experience, combined
- Customizable alerts of changes in relevant policies and trends
- Search and navigate Q&As to find answers to your specific questions
- Filter by article, discussion, analysis and more to find the exact information you’re looking for
- Continually updated to bring you the latest reports, trending topics, and coverage analysis
Already have an account? Sign In Now
For enterprise-wide or corporate access, please contact our Sales Department at 1-800-543-0874 or email [email protected]