Loss of Rents when Renting to Relative

August 4, 2010

We are working a claim in which there is a rental policy in place that covers loss of rents. The insured rented to her son and in lieu of rent he paid the mortgage payment. They did not have any formal agreement. When the fire occurred, the carrier said there was no loss of rents due to her because there were no rents collected. The son had to stay somewhere else and so was no longer paying her mortgage payment as he could not stay there and yet she could not rent it. Are they out of luck because there was not a formal agreement?

Indiana Subscriber

Unless the policy states that there must be a written agreement in place, the insured did have a loss of rents. Just because the rent was in the form of the mortgage payment doesn't mean it wasn't rent. The son was paying to stay in the property the same as anyone else who might have stayed there; whether or not it's in the form of the mortgage payment is of no consequence.

 

However, was she renting to the son when she wouldn't have rented to someone else, or was the property something she regularly rented even when the son wasn't the tenant? The intention of the rental is more important than the existence of a formal agreement.

 

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