Understanding property loss claims and disclaimers for failure to occupy the insured premises

Understanding property loss claims and disclaimers for failure to occupy the insured premises

Posted By Dan Flanzig || 5-Nov-2012

Residency Requirement Under Homeowners Insurance

John R. Casey

New York Law Journal

11-05-2012

Recently, the New York Court of Appeals was asked to consider an appeal involving a homeowners property insurance policy which required that an insured reside at the insured premises.1

At first glance, it seems self-evident that an insured under a "homeowners policy" must actually reside at the premises. Nonetheless, frequently for one reason or another, the named insured does not reside in the property at the time a loss is sustained. New York lower courts have addressed this residency issue with mixed results.

Property Insurance

In Marshall v. Tower Insurance Co. of N.Y.,2 Joseph Gerard Jean purchased property in Brooklyn with the intention that his relatives, Marshall and Valcourt, would live at the premises. His relatives obtained a homeowners policy utilizing a copy of Jean's mortgage application which represented that Jean would reside at the premises. Tower issued a homeowners policy to Jean based upon this information.

Following a fire, Tower denied Jean's claim under the policy. Marshall, Valcourt and Jean brought suit against Tower, which moved for summary judgment upon the ground that the policy required that the insured reside at the premises.

The policy defined the term "Residence Premises" as follows:

8. 'Residence Premises' means: (a) the one family dwelling, other structures, and grounds; or (b) that part of any other building; where you reside and which is shown as the residence premises in the Declarations.

The policy Declarations identified Jean as the insured with his address listed as that of the subject premises. It further stated that "The residence premises covered by this policy is located at the above insured address."

The lower court found these policy provisions ambiguous regarding whether the clause "where you reside" applied to both (a) and (b) of the "Residence Premises" definition. Since the ambiguity had to be resolved in favor of the insured, Tower's motion to dismiss was denied.

On appeal, the Appellate Division, Second Department, reversed. The court found that the provisions of the policy were clear and unambiguous and that the insured was required to reside at the premises. "Contrary to the plaintiff's contention, the set-off clause beginning 'where you reside'

clearly applies to and modifies section 8(a) and (b) quoted above." Thus the court held that the premises were not covered under the policy and that Tower had properly disclaimed coverage.3

In Commisso v. Tower Insurance Co. of N.Y., the insured purchased property with the intent of renovating it and living there.4 However, prior to beginning renovations, Commisso's son and girlfriend lived in the premises. Approximately one year after Commisso purchased the property, a fire occurred at the premises. Upon being notified of the fire, Tower denied the claim and Commisso sued.

Tower asserted two affirmative defenses alleging that Commisso violated the policy by making material misrepresentations that he occupied the premises as his sole and primary residence and that coverage was limited to the residence premises where he resided. Tower submitted evidence that Commisso stated in his application for insurance that the property was to be used as his primary residence and that Tower only issues homeowner policies to cover owner-occupied one- or two-family residences.

The policy contained the same declarations and definitions as the Marshall policy. Supreme Court held that since "Commisso never resided in the premises, and only had the intention to live there in the future, 'there is insufficient evidence of [Commisso's] physical presence and permanency to demonstrate that [he] resided in the premises at any time prior to the date of loss. Accordingly, defendant has established there is no coverage, and is entitled to summary judgment.'"5

In Vela v. Tower Insurance Company of N.Y.,6 the Appellate Division, Second Department, recognized the validity of the Tower policy provisions requiring the insured to reside at the premises. A water loss occurred causing $228,000 in damage to the insured premises. Tower asserted that the plaintiff's policy application contained a representation that the premises were owner-occupied. Ofelia Vela testified at her deposition that the premises had been unoccupied since the closing, and when the water damage occurred, she and her husband and children were living at another property owned by her husband. The court noted:

The plaintiff's mere intention to reside at the premises was insufficient to satisfy the policy's 'residence premises' requirement. Moreover, the affidavits of the plaintiff and her husband stating that they slept at the premises many nights while making repairs to the premises must be viewed as presenting a feigned factual issue designed to avoid the consequences of the plaintiff's earlier admission in her deposition testimony that the premises were unoccupied at all times from the date of the closing to the date of the loss ***.

Vela's appeal to the Court of Appeals was ultimately withdrawn.

In Estate of Neary v. Tower Insurance Company, a fire occurred at the Nearys' residence on Jan. 18, 2005.7 A firefighter was injured fighting the fire and brought a personal injury action against the Nearys. The Nearys subsequently died, and their estates were substituted for them.

Prior to their deaths, the Nearys filed a property damage claim under their homeowner policy. Tower concluded that the Nearys were not living at the premises at the time of the loss and disclaimed coverage. The Nearys brought suit and Tower moved for summary judgment to dismiss the claim and also a declaration that it had no duty to defend or indemnify the Nearys with respect to the personal injury action.

Tower offered an unsworn statement by the Nearys' son, wherein he recounted that his parents lived in the premises until 1995 when they moved to their daughter's home in New Jersey. Tower also offered the son's deposition testimony, detailing the extent that he and his parents utilized the home, as well as his parents' intention to "transition back to the premises."

Supreme Court denied Tower's motion on the ground that it failed to meet its initial burden to prove that the Nearys did not "reside" in the premises. It distinguished Marshall, upon the grounds that the

named insureds' "intent" regarding the residence was clear and documented in Marshall. The court noted that while Tower's definition of a "residence premises" included a two-family dwelling "where you reside in at least one of the family units", Tower had failed to define what qualified as "resides" for the purpose of attaching coverage.

Tower appealed the lower court's decision with respect to the policy's coverage for the fire loss claim, and the Appellate Division reversed.8 The Second Department concluded that Tower was entitled to judgment as a matter of law since the Nearys did not reside at the subject premises at the time of the fire, and rejected the plaintiff's contention that the term "reside" or "residence" in the policy was ambiguous.

In Dean v. Tower Ins. Co. of N.Y.,9 the plaintiffs purchased a home in Irvington, N.Y., and obtained a homeowner's policy from Tower. The closing was delayed for a short period of time. Plaintiffs were thereafter prevented from moving into the house because of termite damage requiring extensive remediation and renovation which extended for over a year, and was still not completed when a fire damaged the premises on May 15, 2006. The lower court granted Tower's motion for summary judgment based upon the policy requirement that the insured reside at the premises.

On appeal, the Appellate Division, First Department, reversed. The court concluded that Tower did not define the term "resides," creating an ambiguity "in the circumstances of this case, where the plaintiff's insureds purchased the policy in advance of closing, but were then unable to fulfill their intention of establishing residency at the subject premises due to their discovery and remediation of termite damage that required major renovations." The court distinguished Marshall on the grounds that that decision did not address whether the term "resides" was ambiguous, and pointed out that the plaintiff in Marshall had no intention of living at the premises.10

The Appellate Division granted leave to appeal to the Court of Appeals. On Oct. 25, 2012, the Court of Appeals affirmed the holding of the Appellate Division, concluding that there were issues of fact as to whether Dean's daily presence in the house for repairs, coupled with his intent to eventually move in with his family, was sufficient to satisfy the policy's residency requirements. The court also held that "because the term 'reside' is not defined in the contract making the term 'residence premises' ambiguous, it is arguable that the reasonable expectations of an average insured…is that occupancy of the premises would satisfy the policy's requirements."

Liability Insurance

Similar issues have arisen in connection with claims under the personal liability provisions of homeowner policies. In Metropolitan Property and Casualty Insurance Co. v. Pulido, Metropolitan insured John Purdue and his wife.11 The homeowner's policy defined "insured premises" as a "one-family dwelling used as a private residence by you and named in the declarations and includes private structures and private approaches." Clara Pulido was bitten by a dog at the premises. The Purdues did not reside at the premises, but rather, their daughter and son-in-law lived there.

Pulido brought suit against the Purdues. Metropolitan retained counsel to defend the Purdues and filed an action for a declaratory judgment that it was not obligated to defend or indemnify them in the underlying action by Pulido. The court found that the Metropolitan policy only provided coverage if the insured premises was used as a residence by the Purdues. Since it was not used as their residence premises, there was no coverage for the dog bite incident. The court noted:

It is significant that all of the definitions of 'insured premises' in the policy have a common element. In order for a location to be an insured premises under the policy it must be a residence of the insured. This fact further emphasizes that the policy is only intended to afford coverage for places where the insureds live.

These cases illustrate the significance of a policy provision that requires that the insured reside at the insured premises. If the residence requirement is enforceable, the insurer may be able to avoid having to commence a declaratory judgment action seeking rescission of the policy based upon underwriting misrepresentations by the insured with respect to residency. Rescission of the policy carries with it the burden of establishing that there were material misrepresentations in the application for coverage by the insured and that the insurer has underwriting guidelines which clearly demonstrate that it would not have covered the risk had the true facts been disclosed.12 This is problematical in many instances. Whereas, if the insurer can establish that the insured never resided at the residence premises, coverage may not exist for the loss.

Standard Fire Insurance Policy

In the case of a property loss by fire, the residency requirement may be inconsistent with the terms of the New York Standard Fire Insurance Policy which provides that any policy which insures against the peril of fire must incorporate "terms and provisions no less favorable to the insured than those contained in the [Standard Policy]."13 Significantly, the Standard Fire Insurance Policy does not contain any specific residency requirement but "speaks in terms of occupancy***."14

In Lane v. Security Mutual Insurance Co.,15 the insurer disclaimed coverage pursuant to a policy exclusion for intentional acts which provided that it would not pay for a loss resulting from "an act committed by or at the direction of an insured" with intent to cause a loss. The named insured's 17-year-old son intentionally set fire to her house. The Court of Appeals held that this exclusionary language was violative of the provisions of the Standard Fire Insurance Policy, which references the term "the insured" rather than "an insured," and was not enforceable against a claim by an innocent named insured.

Conclusion

The recent Court of Appeals ruling in Dean suggests that in situations where the insured is in the process of actively remediating or repairing the building, with the intent to make it her residence, there will be a question of fact regarding the insured's compliance with the policy's residency requirement. The court also noted that the absence of a policy definition of the term "reside" creates an ambiguity which would be construed against the insurer. The court briefly discussed the issue of the application of the provisions of the Standard Fire Insurance Policy, but did not specifically rule on that issue. In any event, where an insured intends to relocate, permanently or temporarily, homeowners policy requirements should be reviewed and a determination made as to whether replacement coverage is necessary.

John R. Casey is a partner with Hiscock & Barclay in Albany. Jason D. Hughes, an associate with the firm, assisted in preparation of this article.

Endnotes:

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