continuing education course

INTRODUCTION

Welcome to this continuing education course which will discuss the Homeowners insurance policy’s Definition Section in some detail. The course starts will a concise General Review to include the topics of risk and insurance; insurance contract characteristics; contracts; and legal liability. The General Review is followed by a study of the Homeowners insurance policy Definition Section; there are eleven definitions in that section. We encourage you to read the included ISO Homeowners 3 – Special Form to see how each of these eleven definitions are used throughout the policy. There are four Units in this “HO-3 from A-Z” course and there is a brief Quiz listed after each Unit; you must pass each Unit Quiz with at least a 70%; if you don’t pass the first time please review the feedback to the questions you got wrong so you can learn that information and simply take a Unit Quiz again. At the end of the course is a Final Exam which you must pass with at least a 70%; if you don’t pass the first time please review the feedback to the questions you got wrong so you can learn that information and simply take the Final Exam again.

Course Acknowledgement

By submitting any Quiz or the Final Exam you acknowledge that you are taking all of the Unit Quizzes and the Final Exam unassisted by any person, the course material or other materials. Additionally, you are acknowledging your understanding that a violation of such standards shall result in the loss of course credit and administrative sanction by the Florida Department of Financial Services. When you complete the Final Exam you will immediately receive a Certificate of Completion and we will upload your completion to the Department of Financial Services within 24-Hours.

There are three key features to the A-Z series of Continuing Education courses:

ISO policy excerpts from the policies
A-Z analysis which analyzes the research we have done
Court Cases which demonstrate how the courts have helped to define the ISO policies

Insurance has been in existence for hundreds of years and is a cornerstone of modern commerce. There are of course other alternatives to insurance when dealing with the exposure to financial loss such as risk control, risk avoidance, and risk retention but it is risk transfer that we are concerning ourselves with in this course and specifically insurance. If you own an automobile you must carry Automobile Insurance; owning a home with a mortgage requires Homeowners Insurance; have employees in a business… correct, Workers’ Compensation Insurance is required and so on and so on and so on. Of course we are preaching to the choir here as you, a licensed insurance professional, are well aware of the importance of insurance. You have undoubtedly seen first-hand how insurance has responded to loss in numerous situations and how it has: (1) restored the lives of your insureds by providing them with a financial safety net; (2) created financial certainty (allow the insured to pay a small known insurance premium in exchange for the protection of a large unknown cost); (3) allowing and providing for commercial transactions (if an insured had to save up 100% of the cost to purchase a home practically no one would own one); and (4) the cost effective spreading of loss exposures and costs over large groups.

This course is an overview of the Homeowners insurance policy Definition Section; one you may already be very familiar with. In our experience asking the typical insurance pro (that’s you) when the last time they have read the Homeowners insurance policy form is much like a dentists asking a patient the last time they flossed. In most instances the actual policy form has either never been examined from “cover to cover” or was only done so when first obtaining a license. There is a big word we like to throw around here at the college, “epistemological”. That word basically relates to how we know what we know. We want you to know how you know what you know regarding the Homeowners insurance policy. The A-Z series exhaustively reviews the court cases that are the underpinning of the policy. This course examines the Homeowners insurance policy’s Definition Section.

In the Overview Section we review and define risk and insurance in general and describe the elements of an insurable risk. This is beneficial in our study of the Homeowners policy because not all exposures are insurable and an understanding of policy limitations and exclusions is necessary when educating the insuring public. We will also do a simple review of what we call the “big three”: (1) contracts; (2) liability; and (3) insurance contract characteristics. We conclude the Overview Section with our approach to insurance policy analysis which we call “5 Ws and an H” including a list of the qualifiers that “giveth and taketh away” coverage.

The Insurance Services Office (ISO) Homeowners 3—Special Form (HO-3) policy is widely used all over the United States to provide people with insurance coverage for their homes. Even when insurance companies draw up their own forms, they often follow the pattern of the ISO forms. For instance, they may provide broader coverage, including in the policy itself something that ISO has as an endorsement added to the policy, but even then they often use the ISO endorsement language.

One reason insurers follow the ISO pattern is that the language of the ISO forms has withstood challenges in court cases or has been refined and improved in the light of court cases. Standardized language also helps state boards recognize what an insurer is doing in a particular form and that facilitates the approval process.

As well, standardization helps insurers set rates because it makes it easier to compare policies. There are other forms designed to meet the different needs of homeowners. Some homeowners require more coverage and some less, and some homes—for instance, older homes with a market value less than the replacement cost of the home—do not qualify for standard coverage. To select the right policies, insurers look at what sort of residence a person has and then what sort of causes of loss the person needs—and can afford—to insure against. We’ll examine these other policies elsewhere. But by far the most commonly used homeowners policy is the HO-3.

The HO-3 insures not only the homeowner’s house itself but also other structures, such as fences and driveways. Unlike some forms where coverage is only for certain perils (“named perils”), the HO-3 covers all losses to the building and structures, unless those losses are explicitly excluded from coverage (“open peril”). Coverage is for the full replacement cost of the loss. So long as certain conditions are met, there is no deduction for depreciation (e.g., the lowering of the value of property due to the age of the home or wear and tear). Under this policy, personal property is also covered, though only for the sixteen perils listed in the policy, and the coverage is for the actual cash value (ACV) of the property, taking depreciation and market value into account.

All of the Homeowners policies share a similar structure, and the HO-3 is no exception:

Insuring Agreement

Definitions

Deductible

Section I—Property Coverages

Section I—Perils Insured Against

Section I—Exclusions

Section I—Conditions

Section II—Liability Coverages

Section II—Exclusions

Section II—Additional Coverages

Section II—Conditions

Sections I & II—Conditions

Note that, after the introductory material (Agreement, Definitions, Deductible), there are two main sections in the HO-3. Section I deals with property coverage and includes the dwelling itself (Coverage A), the other structures related to the building, such as fences and sheds (Coverage B), personal property (Coverage C), and loss of use (Coverage D).

Section II deals with liability coverage and includes personal liability (Coverage E) and medical payments to others (Coverage F). The inclusion of personal liability protection is one of the differences between a homeowners policy (HO) and a dwelling policy (DP). Each of these sections involves certain coverages, certain exclusions, and certain conditions. Because some conditions apply to both sections, these are listed together at the end of the form. The ISO produced its latest version of the HO-3 in 2011 and most states have adopted it. Some insurers, however, continue to use the 2000 edition. Where they differ, we will present the policies side by side and, if the changes are significant, discuss both versions.

GENERAL REVIEW

Risk & Insurance Defined

Risk

Simply put, risk in the context of insurance is the exposure to or chance of financial loss. Financial loss is the reduction and/or destruction in use, value, access, custody, or function of persons, property and/or intangible property rights. In general risk can be categorized as: pure risk which is ONLY the chance of loss; and speculative risk is the chance of loss or gain. Insurance is of course designed to offset the financial impact upon an insured of pure risk (we leave speculative risk to the gamblers and investors out there). The goal of insurance is the restoration to an injured or damaged party from loss to their persons, property and/or intangible property rights to “set them back/make them whole” financially as though the loss never occurred.

Perils and Hazards

You will recall from your prior studies some of the “moving parts” to risk as it relates to insurance (perils and hazards). Perils are defined as contingencies that may cause a loss. Closely related are hazards which are conditions that introduces or increases the likelihood of loss from a peril. There are three hazards that we concern ourselves with as insurance professionals:

Physical Hazard: physical characteristics which increase the probability or severity of loss.
Moral Hazard: a conscious mental attitude which increase the probability or severity of loss.
Morale Hazard: unconscious mental attitude which increase the probability or severity of loss.

Key Takeaway: Physical Hazards are physical characteristics which increase the probability or severity of loss. Moral Hazards are demonstrated by a conscious mental attitude which increases the probability or severity of loss. Morale Hazards are demonstrated by an unconscious mental attitude which increases the probability or severity of loss.

Dealing with the Risk

As we stated, insurance (1) creates a financial safety net; (2) provides financial certainty (3) facilitates commerce; and (4) spreads the cost of dealing with over a large group. In the biz we refer to that spreading of the cost as “risk pooling” which is essentially the spreading of financial risks evenly among a large number of participants for basically the benefit of the few unfortunate ones. That “cost spreading” is possible due to the statistical concept of the law of large numbers which suggests that the more exposure units we have to study the more likely that any projections we make are likely to equal what actually occurs. For example, if we were to toss a fair coin five times it is possible that we could toss heads all five times. However, if we were to toss that same coin 5,000 times it is very, very likely that we would toss approximately 2,500 heads and 2,500 tails.

Elements of Insurable Risk

As stated insurance is heavily associated with risk pooling and the law of large numbers. In fact for an exposure to be commercially insurable there must be a sufficiently large number of homogeneous exposure units. There are in fact six elements which make an exposure insurable. A second requirement is that the probability distribution of loss is determinable; that is a calculable exposure of loss. A third requirement is that loss exposure should be both determinable and measurable; that is definite as to cause, time, place, and amount. A fourth requirement is that the chance of loss should be calculable; that is an insurer must be able to calculate both the average frequency and the average severity of future losses with some accuracy. This requirement is necessary so that a proper premium can be charged that is sufficient to pay all claims and expenses and yield a profit or at least all the insurer to stay in business. Of course, losses must be by chance and they must be out of the control of the insured; that is the exposure to loss must be fortuitous (the fifth requirement). Lastly, the loss exposure cannot be catastrophic in nature; that is the exposure should not and could not “wipe out” all of the insureds in one event.

The 6-Elements of an Insurable Risk

there are a sufficiently large number of homogeneous exposure units
the probability distribution of losses is determinable
loss exposure is both determinable and measurable
the chance of loss is calculable
loss exposure must be fortuitous
loss exposure is not catastrophic in nature

Insurance Defined

The statutory definition of insurance is expressed in F.S. 624.02 as follows.

F.S. 624.02 “Insurance” defined.—Insurance” is a contract whereby one undertakes to indemnify another or pay or allow a specified amount or a determinable benefit upon determinable contingencies.”

Insurance is a two party contract; the first party is the insured and the second party is the insurer. In the statutory definition, the insurer indemnifies or pays for damages to the insured OR pays third parties (meaning a claimant) for damage the claimant received because of the negligence of the insured. The statutory definition states that the indemnification or payment is based upon “determinable contingencies”. For a first party claim (a claim made by the insured directly to the insurance company) a good example may be a fire that damages a home. The “determinable contingency” is the peril of fire (which could just as easily be lightning, wind, hail, vandalism, theft…). For a third party claim (a claim made by another person) the “determinable contingency” is the negligence of the insured which caused the injury or damage to the other party (claimant). The transacting of insurance has categorically included: (1) solicitation or inducement; (2) preliminary negotiations; (3) effectuation of a contract of insurance; or (4) transaction of matters subsequent to effectuation of a contract of insurance and arising out of it.

Insurance Applications

A contract of insurance may come into being without an application being completed, but most normally a signed written application is generally required by custom, by contract provision, or by statute. The agent invites the potential insured to make an offer by submitting an application. As an offer, an application or request for insurance may be withdrawn at any time before it is accepted by the insurance company. The insured may assume that the insurance policy conforms to the application and is under no duty to read the policy to see whether it does in fact conform. If an application for insurance provides that the contract is complete when received at the insurer’s office and accepted by a designated officer then the application, when received and accepted, forms the contract until the policy is issued and delivered. The applicant can rely on the terms contained in the application and is also bound by them as well. An insurance application should be viewed as a whole and the actual words in an insurance application should be interpreted as stated where there is no ambiguity in the application language or intent. An Application of insurance is a contract and like all contracts requires: an offer, acceptance, consideration, mutual assent, capacity to contract, and a legal intent.

Contracts

Contracts Defined

A simple definition of a contract is a promise or agreement that is enforceable under the law.

An academic or formal definition of a contract is: “A contract is a promise, or a set of promises, for breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty. This definition may not be entirely satisfactory since it requires a subsequent definition of the circumstances under which the law does in fact attach legal obligation to promises. But if a definition were attempted which should cover these operative facts, it would require compressing the entire law relating to the formation of contracts into a single sentence.” 1 Samuel Williston, A Treatise on the Law of Contracts § 1, at 1–2 (Walter H.E. Jaeger ed., 3d ed. 1957).

Offer

A simple definition of an offer is the promise one party makes in exchange for another party’s performance. In so many words it is an invitation to enter into a contract on certain terms.

An academic or formal definition of an offer is: “An offer is, in effect, a promise by the offeror to do or abstain from doing something, provided that the offeree will accept the offer and pay or promise to pay the ‘price’ of the offer. The price, of course, need not be a monetary one. In fact, in bilateral contracts, as we explained earlier, the mere promise of payment of the price suffices to conclude the contract, while in a unilateral contract it is the actual payment of the price which is required.” P.S. Atiyah, An Introduction to the Law of Contract 44 (3d ed. 1981).

Acceptance

Acceptance is an express act or indication that demonstrates an agreement to the terms of an offer in a manner required by the offer so that a binding contract is formed.

An academic or formal definition of an acceptance is: “Acceptance of a conveyance or of a document containing a promise is a manifestation of assent to the terms thereof made, either before or after delivery, in accordance with any requirements imposed by the grantor or promisor. If the acceptance occurs before delivery and is not binding as an option contract, it is revocable until the moment of delivery.” Restatement (Second) of Contracts § 106 (1979).

Consideration

Consideration is the “value” given to someone in return for something of “value” or a promise of something of value. In simple terms, consideration is the something for something (kinda like you scratch my back I’ll scratch yours) or what you might call the basic reason parties enters into contracts. A valid contract must include consideration for every party involved.

An academic or formal definition of consideration is: “By a valuable consideration is meant something of value given or promised by one party in exchange for the promise of the other … The thing thus given by way of consideration must be of some value. That is to say, it must be material to the interests of one or the other or both of the parties. It must either involve some gain or benefit to the promisor by way of recompense for the burden of his promise, or it must involve some loss or disadvantage to the promisee for which the benefit of the promise is a recompense.” John Salmond, Jurisprudence 360 (Glanville L. Williams ed., 10th ed. 1947).

Meeting of the Minds (mutual assent)

Mutual assent is when two parties have agreed upon something and are prepared to enter into a contract. In other words, both parties agree to the same thing. An academic or formal definition of mutual assent is: Actual assent by both parties to the formation of a contract means that the parties agree on the same terms, conditions, and subject matter. Although a meeting of the minds was required under the traditional subjective theory of assent, modern contract doctrine requires only objective manifestations of assent. Black’s Law Dictionary (11th ed. 2019)

Capacity

In simple terms capacity is a person’s legal status to enter into contracts. There are several things that make a person legally able to do so, including age (generally speaking, a person must be at least eighteen (18) years old to enter into a contract in Florida) and state of mind (a party suffering from dementia, Alzheimer’s disease, impaired mental health, impairment by drugs or alcohol, or mental duress would not have the legal capacity to contract).

An academic or formal definition of capacity is: “The power to create or enter into a legal relation under the same circumstances in which a normal person would have the power to create or enter into such a relation; specif., the satisfaction of a legal qualification, such as legal age or soundness of mind, that determines one’s ability to sue or be sued, to enter into a binding contract, and the like “she had full capacity to bind the corporation with her signature”. Unless necessary to show the court’s jurisdiction, a plaintiff’s pleadings need not assert the legal capacity of any party. A party wishing to raise the issue of capacity must do so by specific negative pleading.” Fed. R. Civ. P. 9(a). Black’s Law Dictionary (11th ed. 2019)

Legality

In contract law, legality of purpose is required of every enforceable contract. One cannot validate or enforce a contract to do activity with unlawful purpose; contrast with an illegal contract.

Legality can also be expressed in relation to “illegal contracts”; academic or formal definitions of illegal contracts are as follows.

“Illegal Contract. (18c) “A promise that is prohibited because the performance, formation, or object of the agreement is against the law. • Technically speaking, an illegal contract is not a contract at all because it cannot be enforced.” Black’s Law Dictionary (11th ed. 2019)

“An illegal contract is exceptionally difficult to define. It does not merely mean a contract contrary to the criminal law, although such a contract would indubitably be illegal. But a contract can well be illegal without contravening the criminal law, because there are certain activities which the law does not actually prohibit, but at the same time regards as contrary to the public interest and definitely to be discouraged, for instance, prostitution. While a void contract is not necessarily illegal, an illegal contract is often void. However, the consequences of an illegal contract differ somewhat from those usually produced by a simply void contract, so illegal contracts are usually accorded separate treatment.” P.S. Atiyah, An Introduction to the Law of Contract 38 (3d ed. 1981).

Key Takeaway: A contract is a promise or agreement that is enforceable under the law. The elements of a contract are: an offer, acceptance, consideration, mutual assent, legality, and competent parties.

An offer is the promise one party makes in exchange for another party’s performance. An acceptance of an offer is an express act or indication that demonstrates an agreement to the terms of an offer in a manner required by the offer so that a binding contract is formed. Consideration is the “value” given to someone in return for something of “value” or a promise of something of value. All valid contracts must include consideration for every party involved. For a contract to be binding there must be mutual assent; that is both parties have agreed to the same things. The contract must be for a lawful transaction and the parties to the contract must have the legal status (that is be legally competent) to enter into the contract.

Legal Liability

Liability Policy Insuring Agreements

Liability insurance policies contain an insuring agreement wherein the insurer agrees: “to pay on behalf of the insured all sums the insured becomes legally obligated to pay as damages.” Liability “insuring agreements” basically state that the insurer agrees to pay on or behalf of the insured all sums the insured becomes legally obligated to pay as damages. For example the ISO Personal Auto Policy states: “We will pay damages for “bodily injury” or “property damage” for which any “insured” becomes legally responsible because of an auto accident.”

The ISO Homeowners Policy Liability insuring agreement states: “If a claim is made or a suit is brought against an “insured” for damages because of “bodily injury” or “property damage” caused by an “occurrence” to which this coverage applies, we will:

1. Pay up to our limit of liability for the damages for which an “insured” is legally liable. Damages include prejudgment interest awarded against an “insured”; and….

2. 2. Provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent. We may investigate and settle any claim or suit that we decide is appropriate. Our duty to settle or defend ends when our limit of liability for the “occurrence” has been exhausted by payment of a judgment or settlement.

Torts

A tort is an act or omission by one party that injures or damages another party or parties for which the law recognizes as liability of one party to the other. Further the law recognizes the liability and affords a remedy to the injured or damaged party by and from the party which caused the injury or damage. That acting or omitting party is referred to as a “tortfeasor” and the act is referred to as a tort.

An Act: the tortfeasor did something which should not have been done which led to injury or damage. Example: the operator of a motor vehicle drives through a red light and hits another vehicle.

An Omission: the tortfeasor did not do something which they should have done which has led to injury or damage. Example: a property owner does not advise an “invitee” of a dangerous condition on the property and the invitee is injured as a result.

Negligence: The failure to exercise that degree of care that the law requires to protect others from an unreasonable risk of harm. The failure to act as a prudent person would have acted under similar circumstances.

Unintentional Torts (ordinary negligence) – the tort by means of failing to act as a normal prudent person would.

Intentional Torts – the tort by means of an intentional act and with premonition.

Absolute Liability and Strict Liability: Absolute Liability and Strict Liability is liability imputed to a party as a result of ultra-hazardous activities undertaken by or products produced by that party that exposes the public to such a degree of harm that no degree of care provides a defense to the imputed party. For example, a dynamite factory is so inherently dangerous that even the prudent management of the factory would not absolve the factory from legal liability in the event of a factory explosion that injured third parties and damaged their property.

Vicarious Liability: Vicarious Liability is when the act or omission by one party is imputed to another. Examples include the liability imputed to parents for the acts of their children; acts of an employee imputed to the employer; and acts of an independent contractor imputed to their principal.

Negligence

Legal Liability”: Legal liability” is where one party has damaged another and as a result is legally responsible for the injury or damages sustained by the other party.

Occurrence: An “occurrence” is the property damage or bodily injury from an incidence, accident or continuous and/or repeated exposure to substantially the same general harmful conditions.

Common Law vs. Statute Law

The two forms of Legal Liability are…

Criminal Liability: legal responsibility for breaking the law – prosecuted by a governmental body for violating a criminal law.

Civil Liability: legal responsibility between parties (most normally not a government body) concerning matters of breach of contract, intentional torts, strict liability, vicarious liability, and the run of the mill common negligence.

The Consequences for Criminal and Civil Liability include…

Criminal Liability: imprisonment and fines.

Civil Liability: required contractual performance, injunction, payment for damages, payment for gross negligence (punitive), payment for bath faith.

Complaint vs. Answer

A civil lawsuit is a court-based process through which one person or entity seeks to hold another person or entity liable for some injury or damage. A complaint is a legal filing that starts a lawsuit and informs the party being sued of the claim against them. It states the facts and reasons for the claim against that party and also states the relief sought by the filing party and importantly “why” they are entitled to it. The answer is the legal filing by the defending party responding to the complaint by denying or admitting to the allegations of the complaint.

Defenses

Assumption of Risk: The defense argues that when a person knows of a risk of an activity AND that person voluntarily accepts the risk they do so at their own peril. It is argued that the person cannot recover for damage or injury which occurs as a result of the activity. In a nutshell, if you or I know that doing something poses a risk of harm to us and we sustain an injury while voluntarily engaging in it, we may be barred from any recovery from any other party. The two tenants of the Assumption of Risk doctrine are:

1. the injured or damaged party knew of the risk including a full appreciation of the extent of the danger

AND

2. the injured or damaged party voluntarily exposed themselves to the danger

Comparative Negligence: The doctrine of comparative negligence apportions liability to responsible parties and bars recovery for whatever portion of a loss a party is deemed to be responsible for. In an auto accident where a party is 60% at fault in an accident they could recover 40% of their damages from the other party that was deemed 40% responsible. Conversely, the other party could collect for 60% of their damages but would be barred from the 40% for which they were responsible.

Statutes of Limitations

A statute of limitations is a law created to set the maximum time after an event within which legal action may be initiated; after the time has “tolled” no action can be brought.

Breach of Contract = 5 Years
Tort = 4 Years
Insurance Claims Against Insurance Company = 5 Years from Date of Loss
Hurricane Claims = 3 Years from Date of Loss
Wrongful Death = 2 Years from the date of death

Breach of Product Warranty

The “breach of product warranty” is a claim for injury or damage that results from a product that malfunctions or breaks leading to injury or damage; OR from the sale of a functional product which is “mis-sold” and is not intended for the use the seller alleges it to be capable of. The first is referred to as “product warranty of merchantability” and the second “implied warranty of fitness”. In any event, manufacturers and sellers have a duty to make and sell products that are not dangerous to the consuming pubic; when this duty is breach civil liability results.

Insurer’s Obligations

An insurer’s responsibility to defend an insured in a Liability policy is paramount to indemnifying the insured for their legal liability. However, the insurer’s responsibility to defend ends when the insurer has paid the policy limits. In a case where the damages in the claim exceed the policy limits the insurance company will send an “excess ad damnum letter” to the insured and claimant advising that the amounts claimed exceed the policy limits.

Recall the insuring agreement of the Homeowners Insurance policy (HO3) where in the policy clearly states:

“Our duty to settle or defend ends when our limit of liability for the “occurrence” has been exhausted by payment of a judgment or settlement.“

Reservation of Rights

A “reservation of rights” letter is sent to an insured to put the insured on formal notice that a claim may not be covered by the insurer’s policy. Reservation of rights letters to an insured do not deny the insured’s claim. However, the letter indicates that the insurer is investigating the claim and reserves the right to deny the claim after it completes its investigation.

Reservation of Rights Letter: Ten Required Elements

States in the letter clearly what the correspondence is using specifically the words “Reservation of Rights”
Specifically identifies the insured’s policy
States the relevant policy provisions at hand and identifies any terms, conditions, or exclusions which may bar coverage
States which claims may not be covered
States in detail the basis for the insurer’s coverage position
States the proposed arrangement for providing a defense
Advises the insured of the insured’s right to independent defense counsel
Advises the insured of any actual or potential conflicts of interest between the insurer and the insured
Unequivocally reserves the right to withdraw from a defense for the insured
States a general reservation of rights, including the right to assert other defenses the insurer may subsequently learn to exist during further investigation

Damages

Liability insurance quantifies “damages,” in monetary terms. Compensatory damages award money for tangible and intangible economic loss suffered by a third party claimant. General damages award money for the intangible losses such as pain and suffering, mental anguish, permanent injury, disfigurement, future loss of employment and pecuniary opportunity, and loss of reputation among others. Special damages are the tangible and calculable losses such as: medical bills, repair invoices, lost wages.

Punitive damages are awarded by the court to a third party claimant to punish, to provide equitable relief when compensatory damages are deemed inadequate, and as a warning to others regarding a similar breach or duty or failure act.

Declarations Page
Insuring Agreement
Definitions
Sections
Coverages
Additional Coverages
Perils Insurance Against
Exclusions
Conditions
Numbers and Figures

Declarations Page: The Declarations Page is the first page of an insurance policy with a general outline of the policy. It provides the insured’s name and address, the insurance company’s name and address; and most normally the insurance agent’s name and address. The inception and expiration dates of the policy are listed as well as coverage types, coverage amounts; and premium amounts can be found on the Declarations Page.

Insuring Agreement: Insuring Agreements articulate in basic terms a policy’s overarching description of what is covered. They are located at the very beginning of each policy, each section, and/or coverage. An Insuring Agreement may also establish that the policy contains “all agreements and responsibilities” between the insurer and insured and put the insured on notice that the policy’s coverage is conditioned upon compliance with “all applicable provisions of the policy”.

The ISO HO3 Policy Form Insuring Agreement is the very first section of the policy as follows:

AGREEMENT

“We will provide the insurance described in this policy in return for the premium and compliance with all applicable provisions of this policy.”

Definitions: The Definitions section of a policy specifically defines terms used throughout the policy. The purpose is to ensure a clear understanding of “whom” and “what” the insurance policy covers. Consider the following definition of “bodily injury” found in the ISO Homeowners policy: “’Bodily injury ‘means bodily harm, sickness or disease, including required care, loss of services and death that result.” Now consider if bodily injury was defined as: “’Bodily injury’ means bodily harm, sickness or disease, including required care that results.” What happened to the “loss of services”? Does the omission mean “loss of services” are not included as party of a bodily injury liability claim? Recall that the Insuring Agreement is a very broad statement of coverage. As you work your way through an insurance policy you will notice words in “parenthesis”, these are the words found in the Definition Section of the policy. You must make sure that you give “defined words” their “defined meanings” when reviewing a policy. The Definitions section, along with other policy parts, gives that broad Insurance Agreement statement a more definite form.

Sections: The Sections of an insurance policy create delineations between the major coverage types. The Homeowners policy Section I includes all of the Property Coverages and Section II includes all of the Liability Coverages. Section I coverages are primarily first party coverages and Section II concerns itself with third party liability. Each major Section has further Coverage sections which include additional Insuring Agreements, Exclusions, and Conditions. An example in the Homeowners Policy is the broad statement of coverage for Coverage A – Dwelling.

Coverage A – Dwelling

1. We cover:

a. The dwelling on the “residence premises” shown in the Declarations, including structures attached to the dwelling; and

b. Materials and supplies located on or next to the “residence premises” used to construct, alter or repair the dwelling or other structures on the “residence premises”.

2. We do not cover land, including land on which the dwelling is located.

Coverages: The Coverage Sections of an insurance policy state what is covered under the policy. The description of coverage is broadly stated and further refined by any Additional Coverages Sections, Exclusions, and Conditions.

Additional Coverages: The Additional Coverages Sections of an insurance policy define and describe specific “additional” coverage; and so with great detail. The Additional Coverage Sections accomplish four task (1) add coverage with precision; (2) embellish existing coverage; (3) add policy limits; and (4) limit coverage. Let’s look at a couple of examples in the Homeowners policy form.

Add Coverage with Precision: The Additional Coverage “Ordinance or Law” defines how the policy will respond to increases in cost due to the enforcement of an ordinance or law; an exposure which is excluded in Section I Exclusions. In this way Ordinance or Law related losses are excluded BUT FOR those covered by Additional Coverage and in this case by also providing additional policy limits.

Embellish Existing Coverage: The Additional Coverage “Collapse” requires an insured building to not only abruptly fall down or cave it BUT the building must be rendered uninhabitable “for its intended purpose”. In this way the Additional Coverage of “Collapse” embellishes the broad statement of direct physical loss to a building BUT FOR the building’s collapse rendering the building uninhabitable.

Perils Insured Against: Insurance policies protect property against physical losses. Those losses are caused by any number of perils. As you recall, coverage can be on a named perils basis or an open perils basis. When coverage is on an open peril basis then coverage is extremely broad and the policy will have numerous exclusions to more precisely define what the insurance company is actually willing to cover. When coverage is on a named perils basis then only losses caused by those perils are covered; and no others. Some policies cover some insured property on an open perils basis and other property on a named perils basis.

The Homeowners policy Section I – Perils Insured Against states:

A. Coverage A – Dwelling and Coverage B –Other Structures

1. We insure against direct physical loss to property described in Coverages A and B.

B. Coverage C – Personal Property

We insure for direct physical loss to the property described in Coverage C caused by any of the following perils unless the loss is excluded in Section I – Exclusions.

Exclusions: All insurance policies have one or more Exclusions Sections which eliminate coverage for specified exposures. Exclusions are another way the insurance company exactly defines the coverages it wants to provide in the policy. Most policies have a section entitled Exclusions but keep in mind that an exclusionary provision can be found anywhere in the policy. In some instances Exclusions actually contain language which broadens the policy’s coverage. In the Homeowners Insurance policy, the Watercraft Liability Exclusion excludes “Watercraft Liability” if any watercraft is operated in a race or speed contents; rented to others, used for any type of livery; or used for any “business” purpose. Thereafter the Exclusion defines how “watercraft liability” is covered under certain conditions and certain types of watercraft.

Conditions: The Conditions Section of an insurance policy qualifies the various promises made by the insurance company. First and foremost are the insurer’s promises to pay and provide other services which require an actual “occurrence” to set the coverage in motion. Certainly the policy does not promise to cover all losses. And of course, the policy imposes certain requirements on the insured, such as premium payments or duties “follow a loss”. The Conditions Section also addresses how the insurance company and insured’s rights with regard to competing interest and/or adverse claims positions in the “Concealment or Fraud”; “Suit Against Us”; “Other Insurance”; and “Subrogation” Sections respectively.

Section 1: The Insuring Agreement

AGREEMENT

We will provide the insurance described in this policy in return for the premium and compliance with all applicable provisions of this policy.

Copyright, Insurance Services Office, Inc., 1999, 2010

Who: There are two parties involved in this agreement, the insurance company (“we”) and the person or people who are named in this policy and who are going to be insured under this policy.

* The insurance company or insurer is engaged in the business of pooling risk, spreading out the costs of unexpected losses to many people so that a person does not have to bear the total cost of his own loss.

* The insured here are the people whose names appear on the policy and who will be covered by the policy, together with some others who are associated with them in the ways the policy will define. The insured do not wish to bear all the risks of home ownership themselves. Instead, they wish to transfer risk—the possibility of loss—to others by purchasing insurance. They may so do for a variety of reasons including personal aversion to risk, legal requirements, or responsibilities imposed on them by other contracts (e.g., they cannot get a mortgage without homeowners insurance).

What: The insurer and the insured have obligations toward each other that they are agreeing upon in this policy.

* The insurer makes a promise: “We will provide the insurance described in this policy.” Providing that insurance includes the payment of money to or on behalf of the insured in the event of a covered loss. It also includes the legal defense of the insured if he or she is sued by a third party, provided that certain conditions in the policy are met.

* The insured also has obligations: “the premium and compliance with all applicable provisions of this policy.” The insured must pay the premium, the cost for purchasing and renewing the insurance policy, and must also keep all the requirements that are specified for him or her in the policy.

The HO-3 policy begins with an agreement between the insurer and the insured. It is this agreement that makes the insurance policy an enforceable contract. Each party in the agreement is obligated to give something to the other. In contract law, the term for what each party gives is consideration. That consideration can be a promise (“We will do such-and-such”) or it can be performance (i.e., doing or giving something, in this case giving the payment called the premium and doing the things the policy requires). In this agreement, the insurer makes a promise: “We will provide the insurance described in this policy.” Of course, the agreement doesn’t specify exactly what that insurance is. To find that out, one must read the rest of the policy, including any endorsements that are added to it, noting the definitions of certain words and paying attention to the exceptions. But this promise on the part of the insurance company is not unconditional. In order to receive the insurance that is promised, the insured—in this case, the specific person or persons named in the policy—must fulfill certain obligations. He must pay the premium—the cost for purchasing and renewing the insurance policy—and he must also comply with “all applicable provisions of this policy.” That is, he must do the things that the policy says he must do.

Key Takeaway: The insurance company and the insured who are named in the policy have obligations toward each other. Each must do something for the other.

There are a number of ways in which the insurer and the insured can violate this agreement.

The insurer can fail to keep the promise to provide some aspect of the insurance described in the policy (e.g., not paying a valid claim; refusing to defend the insured in court as the policy says). This failure doesn’t mean the policy no longer exists. It does exist, and the court—if it agrees that the insurer failed to keep the promise—will require the insurer to do so. The insured can fail to keep the obligations required in the policy (e.g., committing arson in order to get a payment from insurance company; misrepresenting the facts when a loss occurs; refusing to cooperate with an insurance company’s investigation). In some cases, failure to comply with the policy requirements may mean that certain losses are not covered or that the insured is not eligible for legal defense by the insurance company in a liability case. In other cases, failure to comply with the policy requirements may result in the cancellation of the policy.

In particular, the insured can violate the policy by not paying the insurance premium. In the event of such failure, the insurance company may cancel the policy or even, in some cases, declare that the policy is not—and never was—in effect. There is an important difference between the insurer and the insured. The insured may cancel a policy at any point in time and for any reason. If the insured thinks another company offers better coverage or if he is attracted by another company’s lower premium, he may switch companies and cancel his policy so long as he does so in accord with the terms of the policy. But the insurer may not cancel a policy without giving notice in accordance with state regulations.

Different states have different standards when it comes to the renewal of a policy. An insurance company must give notice to the insured before canceling a policy for failure to pay a renewal premium. But in all states, in order for there to be an insuring agreement, the first premium must be paid. Without it, there is no insurance policy in force at all.

Megee v. United States Fidelity

On May 14, 1978, Ralph Megee applied for disability income insurance. His agent was Chandler T. McEvilly of the Vertex Insurance Agency and the policy was with United States Fidelity and Guarantee Company. Vertex was not sure that he would qualify for the level of coverage he wanted, and so Megee chose to withhold the first premium until he knew what the policy benefits would be.

US Fidelity processed his application, had Megee undergo a physical on June 1, issued a policy, and sent it to Vertex. Vertex received it on Saturday, June 5. And on that very day, Megee was injured and disabled—the very thing for which he wanted the insurance policy.

McEvilly found out about the accident on June 7 and contacted US Fidelity and was told not to deliver the policy nor to accept the first premium. Megee mailed a check for the first premium on June 10, but it was returned and Megee was told that he was not going to be covered.

Megee took US Fidelity to court for breach of contract. When the court ruled in favor of the insurance company, Megee appealed. He claimed that McEvilly, acting as an agent for US Fidelity, had waived the payment of the first premium, but the court found no evidence to support that claim. He also asserted that he had understood that the policy would be in effect as soon as his credit check and physical were approved, but the court pointed to the clear language of the policy itself:

“It is agreed that USF&G’s liability shall only be as specified in the policy, A&H 1381, applied for, beginning (a) when the policy is issued and full first policy premium paid during the lifetime of and while the health of the person(s) proposed for insurance is as here described on the policy date, or (b) if the premium is paid with this application, as specified in the conditional receipt.”

Megee had not paid the premium with the application, nor had he paid the premium while his health was the same as it was on June 1, the policy date. And therefore, the court ruled, the insurance policy was not in effect at the time of the accident and US Fidelity was not obligated to cover Megee’s disability.

See Megee v. United States Fid., 391 A.2d 189 (Del. 1978).

Section 2: Definitions Overview
B. In addition, certain words and phrases are defined as follows:
Copyright, Insurance Services Office, Inc., 1999, 2010

The policy’s list of definitions is in alphabetical order, so that anyone reading the policy can recognize a defined term—defined terms are in quotation marks throughout the policy—and locate it in the Definitions section. But if you read through the definitions in order, you find that you need to know information from later definitions in order to understand earlier ones. For instance, all the definitions mention an “insured,” but the word “insured” is not defined until it comes up alphabetically. Similarly, the definition of “employee” distinguishes employees from residence employees, but the term “residence employee” is not defined until the very end of the Definitions section.

The agreement in the insurance policy is brief and seems fairly simple, but it appears that way because what it entails—the mutual obligations of the insurer and the insured—is filled out by the rest of the policy. The very next thing you encounter in a policy is a dictionary, a list of words and their definitions, including some words that may seem so commonplace and ordinary that you wouldn’t think anyone would need to define them. The definitions, though, are extremely important. What a word in the insurance policy means can affect whether a loss is covered or not. In this section of the policy, the insurer is defining important terms in order to avoid confusion or ambiguity. And by agreeing to the policy, the insured is accepting the insurer’s definitions.

Having the definitions up front in the document allows the insurer to state policy provisions briefly, without complicating them with explanations. If the policy had to explain what “household” means every time that word appears, it would be much more difficult and confusing to read. Instead, key words are defined at the outset. When they’re used later in the policy, they’re put in quotation marks. Having definitions helps avoid confusion and court cases, but disagreements about the meaning of words still arise and often courts do get involved in resolving these disagreements.

An insurance policy is what is called a contract of adhesion. This technical term means that only one party—in this case, the insurer—draws up the contract and the other party either accepts the policy as a whole or rejects it. The person who wants to be insured may ask for certain kinds of coverage and the insurance company may find a policy that is suitable or add an endorsement to give broader coverage than the standard policy includes. But the insured does not write up his own policy or get to adjust this or that in the policy that the insurer offers. The policy is a package deal; you either take it as a whole or leave it. But because it is the insurer that writes the policy, not the insured, and because the insurer is more likely to understand the insurance policy and how insurance works than the insured does, it is the insurer’s responsibility to define terms clearly.

If the policy does not define a significant term, the court may consult dictionaries and interpret the word according to its common meaning. In such a case, the court does not take the term as insurance jargon, interpreting it the way an insurance expert might, but rather as an ordinary work, in the way an ordinary person might use the term in everyday conversation. Courts may also take into consideration how that term has been understood in previous court rulings. But if the insured and the insurer have different definitions of the term and both definitions are reasonable, the court will recognize that the term is ambiguous. A term is not ambiguous just because one party interprets it one way and the other party interprets it another way. It’s not as though an insured could claim that a term is ambiguous because he has found an archaic definition that suits him or because he has come up with his own idiosyncratic interpretation of the word. The two interpretations must both be reasonable: The term could legitimately mean this or it could mean that. In such a case, the court will rule in favor of the insured. The insurer did not define the word so as to rule out the insured’s reasonable interpretation of it.

Key Takeaway: The insurer writes up the policy and the person who wants insurance either accepts the policy or rejects it. It is therefore the responsibility of the insurer to define important terms clearly. If there is an ambiguity, the court rules in favor of the insured.

O’Meara v. American States Ins. Company

A case in 1971 turned on the meaning of the common word “waves.” Jean O’Meara owned a home on the St. Joseph River in South Bend, Indiana. The property included a rock wall along the riverside. Motorboats on the river were stirring up the water to such an extent that it was damaging the rock wall, and O’Meara contacted her insurance company, expecting that that damage would be covered by her policy.

Her insurance company, however, pointed out that the policy did not cover losses “caused by, resulting from, contributed to or aggravated by … floods, surface waters, waves, tidal waves, overflow of streams or other bodies of water, or spray from any of the foregoing, all whether driven by the wind or not.” When O’Meara filed suit against her insurance company, the court ruled in favor of the insurer.

O’Meara appealed, claiming that the wording of the policy was ambiguous. After all, the policy spoke about “waves,” but what caused the damage to her wall was not “waves” but rather the “wake or wash” of the motorboats. She admitted that “wash” and “waves” are “pretty much alike,” but asserted that, properly speaking, waves are caused by natural forces. The insurance company provided dictionary definitions and literary quotations to show that any ridge or undulation of surface water can be called a wave and that waves don’t have to be caused by natural forces. The court agreed. In common speech, the wake or wash of a boat is included in the broad definition of “waves.”

O’Meara also claimed that the phrase “all whether driven by the wind or not” was ambiguous. She took it to mean “whether driven by the wind or other natural forces.” The court saw no reason to take it this way and ruled that the phrase was not ambiguous. It means “all whether driven by wind or any other force,” in this case including motorboats. And so the court ruled in favor of the insurance company: O’Meara’s loss was explicitly excluded by the clear language of the policy.

See O’Meara v. American States Ins. Co., 148 Ind. App. 563, 268 N.E.2d 109 (1971).

Continental Ins. Co. v. Roberts

In July 2001, Stephen Gimopoulis dove headfirst off Polly Roberts’ boat into shallow water and was severely injured, becoming quadriplegic as a result. Roberts’ insurance policy provided coverage up to $100,000 for boat-related incidents, but only $25,000 liability coverage per accident for a claim by a “family member.” It defined “family member” as “any member of the named insured’s household,” and it did not define “household.”

When Roberts’ insurance company investigated, it found that Gimopolous and Roberts had been living together for twenty months before the accident. The company regarded him as a member of Roberts’ household, defining a household as people who are living together. They offered him the $25,000. Roberts, however, denied that Gimopolous was a member of her household, defining a household as people who are not only living together but who are bound by ties of marriage, blood, or adoption. They weren’t married or related by blood or adoption and therefore weren’t members of each other’s household or family members. And so they were entitled to the higher coverage.

The trial court ruled that the term “household” was truly ambiguous—both definitions were reasonable—and ruled in favor of the insured. The insurance company appealed. But the appellate court pointed out that previous decisions by the appellate court frequently spoke of a household the same way Roberts did, that is, as involving “close ties of kinship.” Those statements weren’t binding, the court said, but they certainly indicate that her interpretation of “household” is reasonable. And so the appellate court upheld the trial court’s decision and ruled against the insurer.

See Continental Ins. Co. v. Roberts, 410 F.3d 1331 (11th Cir. 2005).

Section 3: “You,” “Your,” “We,” “Us,” and “Our”

A. In this policy, “you” and “your” refer to the “named insured” shown in the Declarations and the spouse if a resident of the same household. “We,” “us” and “our” refer to the Company providing this insurance.

Copyright, Insurance Services Office, Inc., 1999, 2010

Who: “You” and “your” refer to the person (or persons) whose names are on the Declarations page of the policy, as well as any spouse who is a resident of that person’s household. “We,” “us,” and “our” refer to the insurance company.

“You” and “Your”

Legal documents have a reputation for being unclear, written in such a way that only lawyers can understand them. They don’t put things the way ordinary people do. They speak instead about “the party of the first part” and “the party of the second part.” And though comedians can make us laugh with routines about this sort of language, we may suspect that this sort of “lawyer-talk” is designed to keep us in the dark about what’s really going on. “You have to be a lawyer to understand a legal document,” we might think.

Insurance policies, though, are legal documents that are meant to be understood, not only by the insurer or by a lawyer but by anyone who purchases a policy or is interested in doing so. That’s why terms are carefully defined and why courts rely on the common dictionary meaning of words. And that’s also why insurance policies don’t use language like “the party of the first part” but speak instead about “we” and “you.” But even these terms need to be defined. “You” and “your,” throughout the policy, refer to two—and only two—categories of people: the named insured and a resident spouse. The named insured is the person whose name is on the Declarations page, which is usually the front page of the insurance policy, the page before the policy form itself begins. The named insured is the policyowner, the one who purchased the policy and who alone is able to cancel the policy.

It is possible to have more than one named insured. Often both a husband and wife will be named insureds on a policy. But even if only one of them is named on the Declarations page, the spouse is still included in “you” throughout the policy, provided he or she is residing in the same household as the named insured. If Bob and Sarah Melton are married and live in the same home but only Bob’s name appears on the Declarations page of the policy, Sarah is still included every time the policy says “you” or “your.”

There are other people besides the named insured and a resident spouse who could also be insured under this policy—for instance, the couple’s children who are living with their parents in the home. But though they are insured under the policy, they are not in view when the policy says “you” and “your.” Nor are they able to cancel the insurance policy or add themselves to it as named insured. (For more on them, see the discussion of the definition of “insured” below.)

While all of this may seem fairly clear, the terms “spouse,” “resident,” and “household” have all been the subject of considerable debate. We’ll look at “resident” and “household” later on in this section and also when we come to the definition of “insured.” At this point, though, we need to understand what the policy means by a “spouse.” If a man and woman have gotten married, each is the other’s spouse. But some states have broadened their definition of marriage to include same sex couples.

As well, some states permit or recognize common law marriages, marriages where the husband and wife have not gone through a wedding ceremony and have no official certification of their marriage. A common law marriage is a marriage—it is not just a couple moving in together and, though it may begin informally, it requires a divorce to dissolve it—and it has certain requirements, which differ from state to state, such as the intent to establish a marriage, public declaration of the marriage, cohabitation, and being regarded by the community as married.

State Farm Fire & Cas. Co. v. Platt

In December 1995, according to Kenneth Sternberg, Kathleen Watson shot him with a firearm on property that was owned by Robert Platt. The question for the court was whether Watson was covered by Platt’s homeowner’s insurance policy, and that question turned on the nature of the relationship between Watson and Platt. Platt himself was in prison at the time of the shooting, doing time for a different shooting, and Watson was living in Platt’s house. She claimed to be his common law wife and the state recognized the legitimacy of common law marriages. So if she was his common law wife, she would be a spouse who was a resident of Platt’s household and would be covered.

Watson claimed that she and Platt had exchanged wedding vows shortly after their daughter was born in 1989. At this time, however, Platt was still married to someone else. For a common law marriage to come into existence, the two parties must be capable of entering into a marriage. So long as Platt was still married, he could not enter into a new marriage and therefore the court did not take this alleged exchange of vows as establishing a common law marriage.

Watson also wore a ring, but Platt claimed she bought it herself and then told people he had given it to her. She told people that she and Platt were married and sometimes called herself “Kathy Platt.” Platt, on the other hand, said that he didn’t tell people they were married. In fact, he claimed that Watson was also living in his house without permission at the time of the shooting. On top of all of that, Watson told other people that she and Platt were planning to get married in 1996, when he got out of prison, thereby implying that they were not currently married.

In the end, the court, having sorted through all of these confusions, ruled that Watson had not presented sufficient evidence to prove that she and Platt had a common law marriage and therefore she was not covered as a spouse under Platt’s policy.

See State Farm Fire & Cas. Co. v. Platt, United States District Court, E.D. Pennsylvania, April 29, 1998 4 F.Supp.2d 399.

In some cases, too, the definition of “you” and “your” in the insurance policy can be amended by an endorsement so that partners in other legally recognized relationships are included. Some states recognize domestic partnerships, in which two individuals share a home together and have certain rights and privileges under the law. These relationships may involve non-marital relationship contracts or the partners may have their names added to a domestic relationship register. Other states recognize civil unions, which usually grant the rights of marriage, although without using the term “marriage.” Another issue that affects the understanding of “you” and “your” in the Homeowners policy is separation and divorce. “You” in the policy refers to the named insured and to a resident spouse. But the result of a divorce is that the named insured and the spouse are no longer related to each other by marriage. A former spouse is not a spouse—even if he or she continues to live on the insured property or even in the same residence as the named insured.

Key Takeaway: The terms “you” and “your” in the policy refer to the named insured, however many there are, as well as any spouse of a named insured who is living in the named insured’s household. Who is counted as a spouse may vary from state to state, and some states recognize civil unions and domestic partnerships in addition to marriages.

Robertson v. Aetna Cas. & Sur. Ins. Co.

On September 7, 1990, Suzanne Robertson was teaching school in Rapides Parish, Louisiana, and allegedly paddled one of her students, Shana Petre. Shana’s mother, Lajuana Petre, later confronted Robertson and allegedly injured her by pushing her against a wall.

Robertson filed suit against Lajuana Petre and Aetna Casualty and Surety Insurance Company, with whom Petre’s ex-husband Vincent had a homeowner’s policy. The Petres were divorced in 1986. Vincent Petre was the sole owner of the house mentioned in the policy, but Lajuana and the two children continued to live there.

Aetna argued that Lajuana was not a resident of Vincent’s household and that she was not his relative. The trial judge did find that Lajuana was a resident of Vincent’s household—she was still living with him—but agreed with Aetna that she was not his relative. When Suzanne Robertson appealed, the court upheld the trial court’s ruling: “Ms. Petre was not related by blood or marriage to the named insured.” Since she was not a relative, Aetna had no responsibility to provide her with liability coverage under her ex-husband’s policy.

See Robertson v. Aetna Cas. & Sur. Ins. Co., Court of Appeal of Louisiana, Third Circuit. December 8, 1993 629 So.2d 445.

What it does say is that “you” and “your” “refer to the ‘named insured’ shown in the Declarations and the spouse if a resident of the same household.” In the example we used earlier, where Bob and Sarah Melton own a home but only Bob is listed on the Declarations page as a named insured, they’re both included in “you” and “your” so long as they continue to live together in the same household. But if Sarah moves out, she may no longer be covered by the policy because she is no longer a resident of the same household as Bob. But that is also the case if Bob moves out. He may still be paying the insurance premium for the house, but it is no longer his residence and Sarah is no longer a resident of the same household as Bob. In that case, she may not be covered by his policy and the house and property may not be either.

When the policy says “you,” it a resident spouse, not a former spouse. Divorce ends that marital relationship. But it is also including only a resident spouse. The ISO Personal Auto Policy specifies that a spouse that “ceases to be a resident of the same household” is included in the definition of “you” and “your” only for a certain length of time. But unlike the Personal Auto Policy, the Homeowners policy does not include a timeframe for cases of separation and divorce.

In some cases, however, courts have ruled that, even though a couple is separated and not living under the same roof, the spouse is still a resident of the named insured’s household. Emphasis is placed on the spouse’s membership in the household, the spouse’s belonging to a particular group of people, rather than on whether the spouse lives in a particular building.

Keyes v. Thibodeaux

In August 2008, James Keyes and Allison Thibodeaux got married. Four months later, they separated. Keyes moved into a home that he and his grandmother and his aunt owned. Fifteen months later, in April 2010, Keyes came to Thibodeaux’s house to clean and measure the roof prior to painting it. While he was working, Thibodeaux sprayed some water on the metal roof. Keyes didn’t realize the roof was wet and he slipped and was injured.

The insurance company viewed Keyes as an insured under Thibodeaux’s homeowner’s policy because he was her husband. The policy stated that bodily injury to an insured was excluded from coverage, and so they did not cover Keyes’s injury. When the case came to court, the trial court granted a summary judgment, without trial, in favor of the insurer.

The appellate court, however, reversed the trial court’s summary judgment. Keyes and Thibodeaux were still married—he was her spouse—but because he had moved out, he was no longer a resident of her household and had not been for fifteen months. Therefore, he was not an insured under her policy and the policy’s exclusion did not apply to him.

See Keyes v. Thibodeaux, Court of Appeal of Louisiana, Third Circuit, March 7, 2012 85 So.3d 12842011-1333 (La.App. 3 Cir. 3/7/12).

Bearden v. Rucker

Lloyd and Derry Lynn Bearden were married and lived together until January 1976, when Ms. Bearden moved out, together with her youngest son. Though separated, they continued to own property together, including the vehicle that Ms. Bearden took with her. The insurance policy was in Mr. Bearden’s name, but the insurer knew that Ms. Bearden had it, was the sole user of the vehicle, and was not living with her husband.

On September 25, 1976, Ms. Bearden and her son were passengers in someone else’s vehicle when they were in an automobile accident and were injured. The question before the court was whether the uninsured motorist provision of Mr. Bearden’s automobile policy applied to Ms. Bearden. Was she a resident of Mr. Bearden’s household?

When the Supreme Court of Louisiana dealt with the case, the primary factor they considered was not where Ms. Bearden was living at the time of the accident but whether her separation from Mr. Bearden was intended to be permanent or temporary. Mr. Bearden had filed for a judgment of separation of bed and board and did not think reconciliation was possible. On the other hand, Ms. Bearden did. Four years had passed and neither had filed for divorce. The Beardens had not divided community property and continued to own the vehicles in common. Ms. Bearden kept some belongings at the family home and visited frequently. Ms. Bearden testified that she thought reconciliation was still possible. On the other hand, Mr. Bearden did not.

The court ruled that, in spite of the separation, Ms. Bearden was a resident of Mr. Bearden’s household and therefore was insured under the automobile policy.

See Bearden v. Rucker, Supreme Court of Louisiana. September 2, 1983 437 So.2d 1116.

The way to avoid a possible lack of needed coverage in the event of a separation or divorce is for both spouses to be included as named insured on the Declarations page. Then, even if one of them moves out, there is still a named insured residing in that house. If an agent does not include both spouses in the Declarations and something happens and coverage is denied, the agent himself may be liable for the error or omission. There are also cases where the term “you” covers two people and one of them acts in a way that violates the policy while the other does not. Suppose, for instance, a man commits arson. This is an act of intentional damage to the property and the policy excludes such losses from coverage. But what about the man’s wife, who was (as far as we know) completely innocent. She had nothing to do with the arson but because of her husband’s act she has suffered the loss of her home. Is she covered? We will examine such cases in more detail when we deal with Intentional Loss in the policy itself. Here, however, we note that lack of clarity on this point raised questions in court in the past, as the two cases below demonstrate. The policy itself has been revised over the years to make it clear that such losses are not covered, even for the innocent party.

Key Takeaway: Although a spouse is included in the definition of “you” in the policy, it is better to name both spouses in the Declarations page so that coverage is maintained even if there is a separation or divorce.

Vance v. Pekin Ins. Co.

Donald and Susan Vance were both named on the Declarations page of their homeowner’s policy. In December 1986, there was a fire that damaged their home and property. Donald was convicted of arson, but Susan was not implicated. The court carefully examined various ways this sort of situation had been handled in the past and relied on contract law to help resolve matters. The court noted that Susan Vance was a named insured on the policy and that the policy excluded “any loss arising out of any act committed by or at the direction of an insured.” The word “an,” they said, must refer to any insured. Since the fire arose out of an act committed by Donald Vance and since he was “an insured,” the policy does not provide coverage for such a loss. “In short,” said the court, “if any insured commits arson, all insureds are barred from recovering.” Innocent as Susan Vance was, the insurance company was not obligated to cover her loss.

See Vance v. Pekin Ins. Co., Supreme Court of Iowa, June 20, 1990 457 N.W.2d 589.

Jensen v. Jefferson County Mut. Ins. Ass’

In September 1990, Jane Jensen and her husband, Michael Ehrmann, separated. She went to a friend’s house to stay till Ehrmann packed and moved out. Ehrmann, however, started a fire at their home. Jensen expected her insurance company to cover the loss, but the insurance company argued that the policy clearly ruled out intentional losses: “We will not pay for loss if you create … a condition that increases the chance of loss arising from a covered peril.” The term “you” was defined as “the Insured named in the Declarations and spouse if living in the same household.”At first glance, the case sounds almost identical to the Vance case only a few months earlier. Jensen’s insurance company pointed to the Vance case as precedent. The district court, however, noted that in the Vance case, both spouses were named insureds on the policy, but in the Jensen case she alone was a named insured. The district court ruled in favor of Jensen, but the insurance company appealed. It didn’t matter, they said, who was a named insured. The policy very clearly defined “you” as including, not only the named insured, but also a “spouse if living in the same household.” Jensen’s husband started the fire and therefore there is no coverage for this intentional loss. The Supreme Court, considering the case, ruled that the term “you” in the statement about intentional loss was ambiguous. If the policy’s definition of “you”—named insured and resident spouse—is inserted into the statement about intentional loss, it would say that the intentional losses not covered are the ones that both the named insured and the spouse committed. But Jensen was innocent, and so her loss would not be excluded.

On the other hand, the insurance company argued that the definition of “you” meant either the named insured or a resident spouse. In this case a resident spouse started the fire and therefore the loss was not covered. The court ruled that the term “you” in this exclusion was ambiguous. It could refer to the named insured or, as the insurance company claimed, it could refer to any insured. Since the court viewed the term as ambiguous and ambiguities are resolved in favor of the insured, the court declared that Jensen was entitled to coverage for the loss caused by her husband’s arson.

See Jensen v. Jefferson County Mut. Ins. Ass’n, Supreme Court of Iowa, January 19, 1994 510 N.W.2d 870.

“We,” “Us,” and “Our”

The policy does not only define “you” and “your.” It also defines the terms “we,” “us,” and “our.” All three terms refer to the insurance company. The insurance agent is not specifically mentioned but is included nevertheless because the agent acts as an authorized representative of the insurance company. Errors or omissions on the part of the agent are regarded as errors and omissions on the part of the insurer. A broker, however, is not an agent of the insurance company. Instead of representing the insurer, a broker represents the insured. And so an insurance broker is not in view when the policy speaks of “we,” “us,” and “our.”

Totty v. Chubb Corp.

In July 2002, the City of Pittsburgh resurfaced the street outside Helen Totty’s home. In September, Totty submitted a Property Loss Notice to her insurance company because, she said, vibrations from the machinery used for the resurfacing had caused damage to her home. The insurance adjuster disagreed, and both sides called in experts to give their opinion about the damage and its possible cause.

Eventually, Totty initiated legal action against her insurance company, Great Northern, and its parent company, Chubb Corporation. That Great Northern might be liable, everyone granted, but the first question the court faced was whether Chubb was involved at all. The court cited Pennsylvania law: “one cannot be liable for a breach of contract unless one is a party to that contract.”

The court noted that the policy explicitly stated that “we” and “us” in the policy referred to “the insurance company named in the coverage summary,” and only Great Northern was named there. Nowhere was Chubb mentioned at all.

Totty pointed out that other documents and letters used stationery with Chubb’s letterhead and privacy policy on it, that the policy was referred to as a “Chubb Masterpiece Policy,” that the premium renewal statement said “Thank you for insuring through Chubb,” that the insurance claim was handled by a Chubb insurance adjuster, that the first expert’s report on the damages was addressed to Chubb, and that the opposing attorney asked her if she had “turned her claim in to Chubb.”

But, said the court, none of that—including the fact that Chubb provides adjusters for Great Northern—means that Chubb is the insurer on a policy issued by Great Northern. The policy clearly said that “we” and “you” refer to Great Northern, and so only Great Northern could be liable for a failure to provide insurance coverage. The court dismissed Chubb as a defendant in the case.

See Totty v. Chubb Corp., United States District Court, W.D. Pennsylvania, August 28, 2006 455 F.Supp.2d 376.

Section 4: Aircraft, Hovercraft, Watercraft, and Motor Vehicle Liability

1. “Aircraft Liability”, “Hovercraft Liability”, “Motor Vehicle Liability” and “Watercraft Liability”, subject to the provisions in b. below, mean the following:

a. Liability for “bodily injury” or “property damage” arising out of the:

(1) Ownership of such vehicle or craft by an “insured”;

(2) Maintenance, occupancy, operation, use, loading or unloading of such vehicle or craft by any person;

(3) Entrustment of such vehicle or craft by an “insured” to any person;

(4) Failure to supervise or negligent supervision of any person involving such vehicle or craft by an “insured”; or

(5) Vicarious liability, whether or not imposed by law, for the actions of a child or minor involving such vehicle or craft.

b. For the purpose of this definition:

(1) Aircraft means any contrivance used or designed for flight except model or hobby aircraft not used or designed to carry people or cargo;

(2) Hovercraft means a self-propelled motorized ground effect vehicle and includes, but is not limited to, flarecraft and air cushion vehicles;

(3) Watercraft means a craft principally designed to be propelled on or in water by wind, engine power or electric motor; and

(4) Motor vehicle means a “motor vehicle” as defined in 7. below.

Copyright, Insurance Services Office, Inc., 1999, 2010

What: Four categories of things are defined here: aircraft not intended to carry people or cargo; hovercraft of any kind; watercraft, no matter how it is caused to move; and motor vehicles, including trailers or semi-trailers that are carried on, towed by, or hitched up for towing by a motor vehicle (see the definition of “motor vehicle” in B.7 in the policy).

When: The policy’s definitions have to do with situations in which there has been bodily injury or property damage and the insured is liable because it came about as a result of the insured’s involvement with the sorts of vehicles or crafts that are listed and defined here. That involvement may take various forms:

* Ownership by an insured person

* Maintenance, occupancy, operation, use, loading or unloading such a vehicle or craft by anyone, not

just the insured

* Entrustment of this sort of vehicle or craft by an insured to anyone

* Failure to supervise or negligent supervision of anyone involved with this sort of vehicle or craft

on the part of an insured

* Vicarious liability, that is, liability for a child or minor who is involved with this sort of vehicle or craft

The policy will go on later to state that if an insured is liable for bodily injury or property damage through any of these sorts of involvement with these sorts of vehicle or craft, the policy will provide no coverage or coverage in very restricted situations.

Who: The policy is dealing with situations in which the insured is liable. But these situations include cases where the insured is not actively involved with the sorts of vehicles or craft defined here at the time of the bodily injury or property damage. The insured may be liable for something that happened when the vehicle was being unloaded by someone else. The insured may be liable due to failing to supervise someone else’s use of a vehicle or for a child’s activity relating to a vehicle.

The homeowner’s policy has two major sections, property coverage and liability coverage. The definitions we’re looking at here have to do with liability. The policy’s liability section is going to state that the policy provided limited coverage and in some cases no coverage for instances of bodily injury or property damage related to the types of vehicles and crafts that are listed and defined here.

Under Section II—Exclusions, subsection A (“Motor Vehicle Liability”) states that incidents involving motor vehicles are not covered if the vehicle is—or is supposed to be—registered for use on public roads, is used in racing or other competitions, rented out to other people, used to carry people or cargo for a charge, or used for any business purpose (with the exception of golf carts used at a golfing facility). The homeowner’s policy is not a personal auto policy, does not cover taxis or other business uses of vehicles, and doesn’t provide coverage for, say, go-carts that are used for racing. If you make money off your ownership or use of this vehicle, it’s not covered. The subsection goes on to list certain other requirements for motor vehicle liability to be covered (e.g., the motor vehicle is in storage at an insured location at the time of the incident; the motor vehicle is used solely to service a residence).

Section II—Exclusions, subsection B (“Watercraft Liability”) limits coverage for watercraft in a similar way. Certain forms of watercraft and watercraft used in certain ways may be covered by the policy, but not watercraft used for competitions or for making money (rental, carrying people, carrying cargo, and other business uses). This subsection goes on to list certain other requirements for watercraft liability to be covered (e.g., the watercraft is in storage at the time of the incident; the watercraft is of a certain size).

Section II—Exclusions, subsections C (“Aircraft Liability”) and D (“Hovercraft Liability”) simply state that the policy provides no coverage at all for these sorts of liabilities. But because the policy provides limited coverage or no coverage at all in relation to these sorts of vehicles or crafts, it is important for the policy to define what the policy means when it talks about aircraft, hovercraft, watercraft, and motor vehicles. And it is important, as well, for the policy to define what connection between the insured and these sorts of vehicles or crafts it has in mind.

The policy deals with situations where an insured person is liable first and only then goes on to define the types of vehicle or craft it’s talking about. But to understand the policy, it helps to think about those things in reverse order.

Vehicles or Crafts
1. Aircraft:

Aircraft means any contrivance used or designed for flight except model or hobby aircraft not used or designed to carry people or cargo;

The word aircraft is defined here as a “contrivance”—a mechanical device—that is “used or designed for flight.” The “or” is important. A device that’s being used for flight—for instance, an airplane that was actually flying in the air when it caused property damage—is obviously an aircraft by definition. But so is a device that is designed to fly, even if it is not and never has been used for flight. Perhaps a family keeps Grandpa’s old airplane in the barn but never flies it. Perhaps the device is currently being used for some other purpose entirely. As far as this policy is concerned, even if it is not being used for flight, it is still an aircraft, by this policy’s definitions, because it was designed for flight. If you start it up but don’t actually fly it and someone gets injured by its propellers, it’s not being used for flight, but it is certainly designed for flight and by definition it’s an aircraft. But there is an exception to the definition: “except model or hobby aircraft not used or designed to carry people or cargo.” A radio-controlled model airplane is not considered an aircraft by this policy’s definitions. A policy owner might think of a hang-glider as a “hobby aircraft” because hang-gliding is his hobby, but by this policy’s definitions it is considered an aircraft, subject to the policy’s exclusions, because it is designed to carry a person.

Again, the word “or” is important: It’s possible that some contraption designed for flight was never intended to carry people or cargo. That’s not what it was designed for. But if it is being used to do so, it is considered an aircraft by the policy’s definitions. One of the challenges face in writing a policy like this is that technology keeps advancing and new forms of aircraft are developed that may test the boundaries of the policy’s definitions. What about a drone? Is a drone an aircraft? Some drones are small enough that they would not be used to carry cargo, let alone people. But other drones are larger and are designed to be able to carry cargo. What would make the difference would be both sides of the “or” in the definition: If a particular drone was designed to carry cargo or if it was being used for that purpose (even though not designed for it), it would be considered an aircraft for the purposes of the policy.

Hanover Ins. Co. v. Showalter

Russell Showalter was a member of the Parachute Center. Steve Trexler went along on a jump that Showalter organized and was injured as a result of an accident that took place in the course of the jump. Showalter’s insurance company, Hanover, believed its policy excluded coverage for Trexler’s injuries, since they arose out of “the ownership, maintenance, use, loading or unloading of an aircraft.” The question for the court was whether a parachute should be considered an aircraft. Hanover, the insurance company, said that it clearly was. Trexler said it clearly was not. Showalter thought the term was ambiguous—and a court would therefore rule in favor of coverage. The court disagreed with Showalter: Even though Trexler and Hanover disagreed about whether a parachute is an aircraft, their disagreement didn’t mean the term was truly ambiguous. The court looked first at the policy’s own definition: “An aircraft means any contrivance used or designed for flight except model aircraft of the hobby variety not used or designed to carry people or cargo.” Certainly the parachute was carrying a person, namely, Trexler. But now the question became whether a parachute is “used or designed for flight.” To resolve that question, the court consulted Webster’s Third New International Dictionary, looking at its definitions of “parachute,” “aircraft,” and especially “flight.” Flight, the court said, is “the act or mode of passing through the air by the use of wings or in a manner analogous (as in duration or distance) to that of a winged creature, or a journey or voyage through the air.” But in a descent by conventional parachute—as opposed to certain types of sports parachutes—what is happening is that a person’s fall is being slowed down so that he lands safely. Flight and descent by parachute are two different things, the court said, and therefore a conventional parachute is not an aircraft, as defined in the policy. Since it is not an aircraft, then, the policy’s exclusion relating to bodily injury as the result of the use of an aircraft did not apply. The insurance company attempted to add a new twist in the appeal stage: The policy did not provide coverage if bodily injury arose from the “loading or unloading of an aircraft.” Now the aircraft in view isn’t the parachute but the airplane. A parachute jump from an airplane is a kind of unloading of that airplane, and therefore an accident that arose from it wouldn’t be covered. The court, however, pointed out that it was too late for the insurance company to change the basis of its argument. In the end, the court ruled in favor of Showalter and Trexler and against the insurance company.

See Hanover Ins. Co. v. Showalter, Appellate Court of Illinois, First District, Sixth Division. September 28, 1990 204 Ill.App.3d 263561 N.E.2d 1230149 Ill.Dec. 534.

Hovercraft:

Hovercraft means a self-propelled motorized ground effect vehicle and includes, but is not limited to, flarecraft and air cushion vehicles.

The policy defines hovercraft as “a self-propelled motorized ground effect vehicle.” That is, it is a vehicle that is not being moved by anyone or anything else, runs on a motor, and depends on air pressure and aerodynamic interaction between the vehicle and the ground for its ability to fly. Hovercraft usually use air blowers to create an air cushion below the craft, which creates lift so that the craft floats above the surface. Ground-effect vehicles are sometimes called “flarecraft.” What is important to notice in this definition is the phrase “includes, but is not limited to.” The policy does not want to get into all the technical distinctions between different kinds of ground-effect vehicles. If a craft fits the definition given, it is considered to be hovercraft, as far as the policy is concerned, regardless of whether someone who wanted to be specific identified it as “flarecraft” or an “air-cushion vehicle” or used some other name entirely.

Technology changes quickly, and the definition given here is intended to be precise without being so narrow that the insurance company could be left unprotected by its policy exclusions or would have to change its policy frequently in order to keep up with the technology. With the current wording of the policy (“includes, but is not limited to”), if someone were to invent a new way of using ground effect in a vehicle and called the vehicle “floatcraft,” the definition in this policy would still apply to it.

Watercraft:

Watercraft means a craft principally designed to be propelled on or in water by wind, engine power or electric motor.

The policy’s definition of watercraft focuses primarily on the location in which the craft is designed to be used (“on or in water”) and the way in which the craft is designed to move (“propelled … by wind, engine power or electric motor”). A motorboat is obviously included, as are jet skis and other motorized craft used on the water. A sailboat is also included in this definition because it is moved by wind, as would a surfboard designed for wind-surfing. But a regular surfboard moves as a result of the height and force of waves and would, by this definition, not be a watercraft. Nor would a rowboat, interestingly, since rowboats they are not designed to be propelled by wind, engine power, or electric motor but rather by the manual labor of rowing.

It is possible that, at the moment of the accident causing bodily injury or property damage, the craft is being moved in some other way than it usually does. A sailboat is designed to move primarily by the force of the wind, but it is possible that the sail could be down and the people in the boat could be rowing it at the time of the accident. One could not claim that, at the moment of the accident it wasn’t a sailboat (not covered) but instead was a rowboat (covered). What matters for the definition is not if it is moving or how it is moving at the time of the accident but whether it is designed to be moved primarily by wind, engine, or electric motor.

Motor Vehicle:

Motor vehicle means a “motor vehicle” as defined in 7. below.

The policy includes motor vehicles here, but leaves the definition of a motor vehicle to a later point in the policy. Definition 7 reads:

7. “Motor vehicle” means:

a. A self-propelled land or amphibious vehicle; or

b. Any trailer or semi-trailer which is being carried on, towed by or hitched for towing by a vehicle described in a. above.

When we think of a motor vehicle, we might think of a car or truck, something that drives on the road. But the policy’s definition of a motor vehicle is much broader than that. It includes any vehicle—whether limited to the land or able to go through water as well—that has a motor that causes it to move. A horse-drawn wagon, of course, would not be a motor vehicle, nor would a bicycle. But a motorized scooter would be, and so would a motorized wheelchair, a Segway, a riding lawnmower, a golf cart, a snowmobile, a dirt bike, an all-terrain vehicle or quad, and a go-kart with a motor. In some states, though, mopeds and electric bicycles, even though they do have motors, are considered bicycles and not motor vehicles.

But the definition of a motor vehicle includes more than just the motorized vehicle itself. For the purposes of this policy, it also includes “any trailer or semi-trailer which is being carried on, towed by or hitched for towing by” any of these motor vehicles. Technically, the trailer doesn’t have a motor and isn’t a motor vehicle, but it is included anyway. The policy includes three possible configurations between the trailer and the motor vehicle: it could be carried on the vehicle, towed by it, or just hitched up to be towed by it.

Liability

As we have seen, it is important for the policy to define what it means by aircraft, hovercraft, watercraft, and motor vehicles. But the main concern of this section of the policy definitions is with liability relating to these types of craft or vehicle. Specifically, the policy is concerned with liability for “bodily injury” or “property damage”—terms that the policy will define later—that arises out of certain relationships or activities involving these types of craft or vehicle. (The phrase “arising out of” will be discussed below.)

1. “Aircraft Liability”, “Hovercraft Liability”, “Motor Vehicle Liability” and “Watercraft Liability”, subject to the provisions in b. below, mean the following:

a. Liability for “bodily injury” or “property damage” arising out of the:

(1) Ownership of such vehicle or craft by an “insured”;

(2) Maintenance, occupancy, operation, use, loading or unloading of such vehicle or craft by any
person;

(3) Entrustment of such vehicle or craft by an “insured” to any person;

(4) Failure to supervise or negligent supervision of any person involving such vehicle or craft by
an “insured”; or

(5) Vicarious liability, whether or not imposed by law, for the actions of a child or minor
involving such vehicle or craft.

(1) The first thing the policy mentions is liability for bodily injury or property damage that arises out of “ownership of such vehicle or craft by an ‘insured.’” The policy is not yet talking about the use of the vehicle or craft. Use—along with various other activities—is dealt with in (2). Here what is in view is the insured’s ownership of the vehicle or craft somehow resulting in or giving rise to bodily injury or property damage.

(2) The second situation the policy lists is where there is liability for bodily injury or property damage arising from the “maintenance, occupancy, operation, use, loading or unloading of such vehicle or craft by any person.” The list includes various activities involving the vehicle or craft, including simply being in it (“occupancy”).

* Maintenance is action taken to keep—or to get—a vehicle or craft running well, including repairing it, cleaning it, and refueling it. Courts distinguish, however, from accidents that happen while someone is doing maintenance and accidents that “arise out of” maintenance.

Martinez v. Citizens Property Ins. Corp

Sergio Avila rented a home that belonged to Jose Martinez. While he was living there, Avila began to change the oil in Martinez’s car. He drove it onto ramps in the driveway and got underneath it and suddenly the concrete driveway collapsed. The car fell on Avila and he was injured. Avila claimed that he had not yet begun to change the oil; he was only “checking” it and had done nothing to the car yet. Martinez’s homeowner’s policy explicitly stated that it did not cover accidents arising out of the maintenance of a motor vehicle, and therefore his insurance company told him that this incident was not covered.

The initial trial found in favor of the insurance company. In the appeal, however, an engineer who examined the driveway testified that it had not been constructed well. The concrete slab was supposed to be a minimum of 4” thick, but was instead only 2 1/8” thick. It also was not reinforced and did not have the required wire mesh.

The appellate said, “It is difficult to imagine a situation where a driveway incapable of supporting the weight of an automobile could be considered anything other than one that was defective or improperly constructed. Based upon the facts of the case, it appears that it was pure chance that the object upon the driveway at the time of its collapse happened to be a car.

“We hold that there is no causal connection between the use or maintenance of an automobile and Avila’s injuries. Avila’s injuries occurred because the driveway did not function as it was supposed to, that is, to hold the weight of a common car…. As such, the car was merely the instrumentality of the injuries and the maintenance of the car was entirely coincidental.”

The appellate reversed the trial court’s decision: The insurance company’s policy did not rule out coverage for Martinez’s liability for Avila’s injuries.

See Martinez v. Citizens Property Ins. Corp., District Court of Appeal of Florida, Third District. April 16, 2008 982 So.2d 5733 Fla. L. Weekly D1040.

* Occupancy is being in or on the vehicle or craft. Courts distinguish, however, between an event that takes place in a vehicle and an event that “arises out of” someone’s being in a vehicle. If one person shoots another while they are in a car together, the car just happens to be the location where the shooting took place. The shooting does not “arise out of” the occupancy of the car.

* Operation and use may seem to overlap, and they are certainly close in meaning. The two words operation and use together are intended to cover the bases, to avoid leaving loopholes that are not addressed in the policy. And there are distinctions that can be drawn between them.

A child who starts a riding lawnmower, for instance, might be said to be operating it, even if she is not using it to mow the lawn.

It is also possible to use a vehicle without operating it. Putting a gun into a gun rack that is permanently attached to a vehicle has been treated by courts as a use of the vehicle, though the vehicle is not being operated—turned on—at the time. What is being used is the gun rack, which is part of the vehicle.

It is important to note that the term “use” here does not refer to any and every use of a vehicle or craft. It has been taken by courts to refer specifically to the proper use, the intended use, of a vehicle or craft. A vehicle’s use is as a means of transportation. If a bodybuilder decided to see if he could lift his motorcycle—to use it as a weight—he would not be using it as a motorcycle. It just happened that he used a motorcycle; he could have used any other heavy object just as well.

* Loading and unloading entail getting people or things into or onto a vehicle or craft and taking them out of or off of it.

In this case, the policy is not speaking only of a vehicle or craft owned by the insured. Who owns the vehicle or craft is not in view here at all. For instance, if a named insured rents a motorboat on his vacation and his passenger is injured, that could be a case of bodily injury arising from occupancy of a watercraft. Nor is the policy speaking about the insured maintaining, occupying, operating, using, loading or unloading the vehicle or craft. Rather, the bodily injury or property damage has arisen from any of these activities “by any person.” It could be a neighbor who is loading firewood in the back of a truck the insured has rented or a friend who came over to change the insured’s oil in the driveway.

(3) The third situation in which bodily injury or property damage might arise, for which an insured could be liable, is “entrustment of such vehicle or craft by an ‘insured’ to any person.” In this situation, the insured has left a vehicle or craft in the care of another person. For instance, an insured—and it need not be the named insured; it could be his daughter—might let a friend borrow her ATV. In doing so, the insured is entrusting that ATV to the friend and may be liable for bodily injury or property damage that comes about as a result.

Negligent entrustment is defined as “the act of leaving a dangerous article (such as a gun or car) with a person who the lender knows, or should know, is likely to use it in an unreasonably risky manner” (Black’s Law Dictionary, 7^th ed.). If you loan your motorboat to a bunch of friends who are drunk and an accident takes place on the lake and one of those friends drowns, there was not only entrustment on your part—you let them have the motorboat—but there was also negligence because you knew the motorboat was dangerous and you knew that they were drunk and therefore likely not to exercise proper care in using it. But the policy here is not speaking only of negligent entrustment. It speaks more broadly than that. It speaks simply of entrustment.

The term entrustment applies not only to a case where you allow a drunk or incompetent friend to use your motorboat and an accident results, but also a case where the friend in question is sober and competent. It applies to cases where you are negligent because you know the person in question is likely to do something he shouldn’t, but it also applies to cases where you cannot foresee any wrongdoing on the part of the person you allow to use your vehicle or craft. The policy speaks here of “such vehicle or craft.” It does not indicate that the vehicle or craft in question is one that the named insured owns. It could, therefore, include a vehicle that he has rented and that he then permits someone else to use.

Georgia Farm Bureau Mut. Ins. Co. v. Huncke

Edward Morton allowed Patricia Huncke, who was 14 years old at the time, to borrow his ATV. She drove it on the field next to Morton’s house, lost control of it, and crashed into a parked car, injuring the woman who was in it.

Morton’s insurance company, Georgia Farm Bureau, refused to cover the woman’s injuries. The policy explicitly stated that it could not cover bodily injury arising out of “the entrustment by an insured of a motor vehicle or any other motorized land conveyance to any person.” The court examined the policy’s exceptions and saw that none of them applied.

The injured woman had claimed that Huncke was an insured and Farm Bureau claimed that she was not, but the court set this dispute aside because it did not matter if she was or was not. She was a third party (“any person”) to whom Morton had entrusted the ATV, and therefore the motor vehicle liability was not covered by the policy.

See Georgia Farm Bureau Mut. Ins. Co. v. Huncke, Court of Appeals of Georgia. November 1, 1999 240 Ga.App. 580524 S.E.2d 302.

(4) The fourth situation the policy addresses is “failure to supervise or negligent supervision of any person involving such vehicle or craft by an ‘insured.’” In this case, an insured—it doesn’t have to be the named insured—has a duty to supervise the person who is involved with the vehicle or craft. As with (2) and (3) above, it need not be a vehicle or craft the insured owns; it would include a vehicle that he is renting. And the person who is involved with the vehicle or craft need not be an insured; it is “any person.”

The term “involving” is important here, because it indicates that more than just use is in view. There may be cases where the person who is maintaining or operating or loading or unloading or even just occupying a vehicle or craft—all the sorts of activities that were listed in (2) above—requires supervision. The policy speaks of both “failure to supervise” and “negligent supervision” because it is possible for an insured to provide some level of supervision but not the appropriate sort or level of supervision. Looking out the window once in a while is a kind of supervision, but it is not the sort of supervision that would be fitting if minor children are playing with the ATV. “Negligent supervision” can also include failing to provide sufficient instruction about a vehicle or craft—for instance, allowing a teenager to take the motorboat out on the lake without training in the operation of the motorboat.

In order for there to be liability for bodily injury or property damage arising from failure to supervise or negligent supervision, there has to be a link between the injury or damage, the behavior of the person who was involved with the vehicle or craft, and the lack of adequate supervision on the part of an insured.

(5) The fifth situation the policy deals with is “vicarious liability, whether or not imposed by law, for the actions of a child or minor involving such vehicle or craft.” The term “vicarious” means that there is a relationship between an insured and the child or minor in which the insured is responsible for the actions of the child or minor. Parents, for instance, are liable for damage caused by the actions of their child. This situation is distinct from the previous ones. For there to be vicarious liability, the parent need not have entrusted a vehicle or craft to a child (3), nor need the parent have failed to supervise the child or been negligent in doing so (4).

Suppose a child sneaks out in the middle of the night and takes his parents’ ATV and ends up having an accident that injures someone. The parents didn’t let him take the vehicle, so this is not entrustment. The parents also did not fail to supervise nor was the parent negligent. He may never have done anything like this before, so the parents had no reason to suspect that he would. But there is still liability—someone got injured as a result of the child’s actions—and the parents bear the responsibility for it. The policy speaks of “a child or minor.” After all, a minor may not be a child any longer. In the United States, a minor is generally someone under the age of 18. As with (2), (3), and (4) the vehicle or craft is not necessarily owned by an insured. It could be a vehicle or craft that the insured has rented.

And as with (4) above, the phrase “actions involving” is important here, because it indicates that more than just use is in view. There may be cases where an accident causes bodily injury to someone or damage to someone’s property because the child or minor is involved in maintaining or operating or loading or unloading or even just occupying a vehicle or craft—all the sorts of activities that were listed in (2) above. A child does not have to be driving a riding lawnmower to cause an injury; it may be possible to injure someone just by turning it on.

“Arising out of…”

The policy is defining instances of liability—aircraft liability, hovercraft liability, watercraft liability, and motor vehicle liability—and all of these cases involve bodily injury or property damage “arising out of” various situations.

Those situations, as we have seen, include cases where the insured is not actively involved with the particular vehicle or craft. Someone else may have been doing mechanical work on it or unloading it. The insured’s wife may have let a friend borrow it. He may have failed to supervise the neighbor’s child who was using the craft. His child may have done something and yet he, as the one responsible for the child, is liable. But in all of these situations, the bodily injury or property damage arises out of the situation—and that phrase in the policy, “arising out of,” is important. “Arising out of” is not the same as “directly caused by.”

For instance, if a father lets his teenage son use his motorboat (“entrustment”) and the son goes out on the lake and loses control of the boat and ends up injuring someone, the son’s action with the boat is the direct cause of that injury. But it wouldn’t be correct to say that the father’s act of giving his son permission to use the boat directly caused the injury. The father could have let his son use the boat and the son could have used it safely, after all. The father didn’t cause the injury, and yet there is a link between the injury, the accident that caused it, the son’s negligence in using the motorboat, and the father’s entrustment of the boat to his son. And that link is what the policy is getting at when it speaks of bodily injury or property damage “arising out of” something—in this case, the father’s entrustment of the boat to his son.

The challenging question—and it’s a question the courts have often discussed—is how tight the link has to be. Or, to put it another way, how broadly should “arising out of” be interpreted? In general, the answer is that courts tend to interpret “arising out of” fairly broadly, though not so broadly that they would accept just any alleged chain of causes that is presented to them, let alone a chain that is long and drawn out (“and then this led to that and that led to this other thing, which led to…”) or one where the alleged connections are weak, unclear, coincidental, or even bizarre. “Arising out of” doesn’t mean “directly caused by,” but something like “having its origin in,” “growing out of, “flowing from,” or, as the Florida Supreme Court has said, “some level of causation greater than coincidence.” But there are some courts that take the phrase “arising out of” more narrowly.

For instance, if a gun goes off in a vehicle, causing bodily injury or property damage, did that accident “arise out of” the use of the vehicle? Courts have distinguished between various possibilities. If the gun went off because a passenger was handling it, courts generally rule that the accident did not “arise out of” the use of the vehicle. The vehicle was just the location; it was not the cause. If the gun went off when it was being loaded into or unloaded from the vehicle, then there is a connection between loading or unloading—explicitly addressed in the policy—and the incident. If the gun went off because it was jostled by the vehicle’s movement, that too could be traced back to the use of the vehicle. But if the vehicle was used as a gun rest when the gun was fired, some courts have ruled that to be a use of the vehicle while others have noted that serving as a gun rest is not the proper, normal function of a vehicle. In such a case, the accident didn’t “arise out of” the use of the vehicle as a vehicle. (See, for instance, the discussion in State Farm Mut. Auto. Ins. Co. v. Powell, Supreme Court of Virginia. June 15, 1984 227 Va. 492318 S.E.2d 393.)

Section 5: “Bodily Injury”

2. “Bodily injury” means bodily harm, sickness or disease, including required care, loss of services and death that results.

Copyright, Insurance Services Office, Inc., 1999, 2010

Who: The definition is not limited to any particular person. The policy will limit coverage in various ways, but the definition of “bodily injury” stays the same throughout.

What: The policy is defining “bodily injury” broadly enough that it includes not only physical harm caused, say, by an accident, but also sickness or disease (which may last over a period of time). The definition includes not only the injury itself, but also the care required for treatment, “loss of services” (a technical phrase discussed below), and the person’s death if it results from the injury.

When: The definition does not limit “bodily injury” to the moment of a particular incident, such as an accident. It includes things that may take place over a period of time (e.g., “sickness or disease,” “required care”), as well as things that may take place sometime after a particular incident (e.g., “loss of services, “death”). It is possible that only after a death does investigation reveal that the death resulted from a sickness which, in turn, resulted from some ongoing problem with a house.

The homeowner’s policy is going to speak about various instances in which the insurer will make payments for “bodily injury” and situations in which it will not, and so it is important at the outset for the policy to define what it means every time it uses this phrase. “Bodily injury,” according to the policy’s definition, is “bodily harm, sickness or disease.” Some policies specify that “bodily injury” is to a person, but the ISO HO-3 takes that for granted. The policy is not speaking about bodily injury to an animal.

The word “bodily” is important. The injury or harm in view has to do with someone’s body. Similarly, Black’s Law Dictionary (7^th ed.) defines “bodily injury” as “physical damage to a person’s body.” Broken bones, skin punctures, and torn muscles are all forms of bodily harm. If a mail carrier slipped on ice at the doorstep of an insured’s house and broke her arm, that would be a form of “bodily injury” and the question would be whether the insured is liable for it and whether the insurer will cover the costs of the injury and possibly the legal defense of the insured.

But “bodily injury” is not limited to physical harm, let alone harm caused by a sudden incident. It also includes “sickness or disease.” Those terms are commonly used interchangeably, but there is a distinction between them. Usually the distinction is defined this way: Sickness refers to the way a person feels—a feeling of significant discomfort or pain—and it’s possible to feel that way even if a doctor cannot identify a particular cause of the feeling. A disease involves a problem with some part of a person’s body, such as an infection or the growth of a cancer. It is possible to have a disease without sickness. Some cancers, for instance, can grow for years without making the person who has them feel sick.

Bodily injury may take place suddenly. The mail carrier slips on the doorstep. An insured’s gun goes off and a neighbor is wounded. But sickness or disease may develop gradually, even over a period of years. Again, it is possible to have a cancer growing for a long time before the person feels sick or the cancer is detected. It is possible for sickness or disease to be the result, not of a sudden incident, but of repeated or ongoing exposure to something harmful, such as a pollutant. The definition of “bodily injury,” though, is not limited to physical harm, sickness, or disease. It also includes some of the after-effects. It includes the care required to deal with the bodily injury itself, such as the cost of hospitalization, therapy, or hospice.

The policy mentions “loss of services.” When a family member—a parent, a child, or a spouse—dies, it affects other members of the family. They no longer benefit from that family member’s presence and the duties he or she performed, but also from that person’s love and companionship. A spouse’s injury may lead to the loss of sexual relations between the spouses. Courts therefore award a certain amount of money to the family members suffering this loss as a way of compensating for the loss.

Finally, the policy mentions “death.” Again, death may happen immediately upon bodily injury. A gun is fired accidentally in a home, the bullet strikes someone, and death is instantaneous. But a disease may develop over the course of years, only later becoming manifest as a sickness and then eventually leading to death.

It’s possible, too, that a particular incident of bodily harm that happens suddenly at a given moment does not lead to death until sometime later. The gunshot may cause a brain injury that only later brings about the person’s death. Even though a long time may pass between the harm and the death—and even though the insured may no longer have this same policy at the time of death—the death is still covered by the policy that was in effect at the time of the initial incident that led to the death.

Key Takeaway: The policy defines “bodily injury” so that it includes physical harm to some part of the body, but also the feeling of sickness or a disease, even if it doesn’t cause a feeling of sickness or pain. It also extends to the “after-effects” of bodily harm, sickness or disease, including the care the injured person needs, any court-appointed costs in the event that the injury results in the loss of someone’s family member, and the person’s death as a result of the injury, even if it happens long after the injury and even if the person is no longer insured under this particular policy.

Mental Anguish and Emotional Trauma?

The policy’s definition of “bodily injury” says nothing about mental anguish or emotional trauma. It speaks explicitly about “bodily harm,” but does not mention the mind or the emotions. Dictionaries define “bodily” as “pertaining to the body” or “physical,” and they often contrast it with “mental” and “spiritual.” And yet the question of whether mental anguish or emotional trauma is included has often come up in court cases.

Some situations entail bodily injury that has an emotional or mental effect.

Courts have also considered situations in which an incident has produced mental or emotional trauma that had a physical manifestation, such as headaches, stomach pain, ulcers, nausea, diarrhea, and perhaps insomnia or hair loss, and in some cases the courts have ruled that these sorts of traumas, because they involve the body, are also included in the category of “bodily injury.”

Holcomb v. Kincaid

In 1964, Wilma Holcomb and Eugene Kincaid were married. Twelve years later, Holcomb filed for separation and then for divorce. Kincaid, however, filed for an annulment, claiming that when he married Holcomb he knew that he was still married to his previous wife and therefore this second marriage was invalid.

Holcomb sued Kincaid for fraud with regard to the marriage, as well as for harassment after the annulment, and said that Kincaid’s behavior had caused her humiliation, embarrassment, and mental anguish, but also physical symptoms, including pain, rash, loss of hair, weight loss, and stroke symptoms.

Kincaid’s insurer, State Farm, stated that Holcomb’s suffering was not “bodily injury,” as defined by the policy, and therefore was not covered. The trial court agreed, but the appellate reversed that decision. State Farm insisted that for there to be a bodily injury, there must be a physical injury caused by external violence, but the policy included “sickness or disease” in its definition of “bodily injury” and neither requires external violence.

According to Holcomb, her humiliation and mental anguish allegedly had physical effects which, the court said, are forms of sickness or disease and therefore included in the category of “bodily injury,” for which the policy provided coverage. By the decision of the appellate, then, State Farm would have to defend Kincaid and might have to compensate him up to policy limits if damages were awarded to Holcomb.

See Holcomb v. Kincaid, Court of Appeal of Louisiana, Second Circuit. November 2, 1981 406 So.2d 646.

Some courts, in their decisions, noting the close relationship between body and mind and how one affects the other, have viewed “bodily injury” as broad enough to include mental or emotional anguish even without a physical manifestation or even when it is not caused by a physical injury. In some cases, courts have ruled that when one person’s physical injuries are particularly shocking to another person—someone else who is present in the automobile when it crashes, perhaps, or a close relative who is nearby watching a loved one being terribly injured—there is a connection between the one person’s bodily injury and the other person’s mental or emotional distress, such that the definition of “bodily injury” can apply to both.

And in still other cases, that principle is extended so that the person who is emotionally or mentally distressed need not witnessed the accident. The report of it may inflict emotional trauma that can be seen as “bodily injury.” Even in these cases, it is important to note that the emotional and mental distress came about as a result of someone’s bodily injury.
At times, courts have faced a grammatical question about the use of word “bodily” in the policy’s definition. When it speaks of “bodily harm, sickness or disease,” does the word “bodily” go with “harm” only? Or does it go with all three: “bodily harm, (bodily) sickness or (bodily) disease”? And if it could legitimately be read either way, does that ambiguity really open the door for including mental anguish in the definition of a “bodily injury”? Even if the word “bodily” applies only to the word “harm,” there is also the question whether mental anguish or emotional trauma can legitimately be identified as a sickness or disease.

Lanigan v. Snowden

Raymond Lanigan’s sister, Ella Mae Laws, was living at the Chatham Hotel in Kansas City, Missouri, when she died. According to Lanigan, the owners of the hotel—Phillip Snowden and James Watson—knew she was sick and should, in fact, have known that she was incapacitated or even dead. And yet they did not check on her and did not discover that she was dead until it was too late to have a decent burial. Lanigan sued them for “interfering with the right of sepulchre” and was awarded $20,000, which he expected their insurer to cover, either because his sister’s body was his property and was damaged or because their negligence caused him emotional distress, which he presented as a bodily injury. The insurer disagreed and the case came to court.

The court rejected the idea that this situation involved property damage, but did see Lanigan’s emotional suffering as bodily injury. The insurer argued that bodily injury required some kind of physical harm to the person who claimed to have been injured, but that Lanigan’s suffering was mental or emotional, not bodily. The court, however, said that that was one legitimate reading of the policy’s definition of “bodily injury.” But since this insurer’s policy defined “bodily injury” as “bodily injury, sickness or death,” it was equally possible to take “bodily” as modifying only the word “injury” and not “sickness or disease.” In that case, mental or emotional suffering could be included under “sickness or disease.” The court proposed that if the insurer had intended the word “bodily” “to modify all three nouns, it could have articulated this with a phrase such as ‘injuries to, sicknesses of, or diseases of the body’” or, citing another case’s proposal, “bodily injury, bodily sickness or bodily disease.” Since it didn’t, it left the term ambiguous, and an ambiguity must be resolved in favor of coverage, even though there was no physical harm and no physical manifestation of the emotional distress.

See Lanigan v. Snowden, Missouri Court of Appeals, Western District. February 11, 1997 938 S.W.2d 330. Many courts cite this case in their rulings, quite often to dissent from it.

Moore v. Continental Cas. Co

Gail Standish brought a legal action against her brother, Glen Moore, alleging that he obtained power of attorney from her and her mother and used it to get a line of credit, putting up the house she and her mother owned as collateral. His actions, she said, resulted in significant financial loss to her and her mother and constituted negligent infliction of emotional distress. Moore expected his homeowner’s policy to defend him, but his insurer said that emotional distress was not “bodily injury” as defined by the policy and therefore was not covered. The trial court found in favor of the insurer. Moore appealed, and the appellate court upheld the trial court’s judgment. Moore appealed once more, and the Supreme Court of Connecticut once more agreed with the insurer.

The Supreme Court presented several arguments to support its ruling. It considered the definition of the word “bodily,” noting that Webster’s Third New International Dictionary contrasts “bodily” with nonphysical aspects of human experience such as the spiritual or mental. “Including purely emotional harm arising out of economic loss as a form of bodily injury would be tantamount to defining the term bodily injury with an antonym. At the very least, such a construction would render the term bodily superfluous as an adjective modifying the term injury.”

The Court rejected the grammatical argument put forward by Moore, namely, that in the policy’s definition of “bodily injury” as “bodily harm, sickness or disease,” the word “bodily” goes with “harm” but not with “sickness or disease,” so that emotional distress could be included as a non-bodily sickness or disease. The Court said, “If the policy had referred to ‘green vehicles,’ and defined that term as ‘green cars, trucks or motorcycles,’ it is unlikely that there would be a reasonable dispute about whether blue trucks and red motorcycles were intended to be included in the definition. We decline to adopt the plaintiff’s idiosyncratic grammatical interpretation of the language in the policy.”

Finally, the Court agreed with Moore that emotional disturbances can have physical effects, such as sleeplessness and headaches, and even noted other cases in which emotional distress—with or without physical effect—was regarded as “bodily injury,” but nevertheless did not grant that the policy’s language could be taken to include emotional distress. In the end, the Court found in favor of the insurer.

See Moore v. Continental Cas. Co., Supreme Court of Connecticut. March 13, 2000 252 Conn. 405746 A.2d 1252.

Even courts that have seen the definition of “bodily injury” as including mental anguish apart from a physical cause and apart from any physical manifestation do so within certain limits. They have not granted that all forms of mental distress could be considered “bodily injuries.” Embarrassment and shame, loss of self-esteem, loss of relationships, and the emotional turmoil caused by worry about one’s financial situation or loss of employment are all forms of mental distress, certainly, but courts have generally not been willing to see these distresses by themselves as “bodily injuries.” Defamation involves an injury to one’s standing in his trade or profession or community—there is a loss of reputation involved, which may also result in other losses, such as economic loss—but it is not a bodily injury.

Insurance law distinguishes between bodily injuries and personal injuries, that is, injuries resulting from such things as defamation, fraud, libel or slander, and false arrest. Some courts have pointed out that if the emotional distress resulting from, say, slander is regarded as “bodily injury,” then the distinction between bodily injuries and personal injuries is blurred. What falls under one category, these courts say, should not also be included under the other. Other courts, however, point out that when it comes to personal injuries what is important is the cause of the injury (e.g., fraud, false arrest), not the nature of the injury (e.g., emotional distress), so that even if emotional or mental distress is included as bodily injury, the distinction between bodily injury and personal injury remains intact.

Liberty Insurance Corporation v. Korn

In 2012, Richard and Magda Korn were divorced. A month later, Magda took a portable hard drive from Richard’s home and gave it to the police, telling them that she thought there was child pornography on the hard drive. The police investigated and found child pornography on Richard’s home computer. But in the criminal trial, Richard was acquitted because there was no proof that he had actually viewed the pornography.

Richard then filed a complaint against Magda for, among other things, “negligent infliction of emotional distress.” He claimed that he had suffered a loss of reputation, a loss of wages, mental anguish and emotional distress, loss of relationships with his daughters, as well as shame, embarrassment, and humiliation. On top of that, he had incurred expenses for medical, psychiatric, and psychological treatment. Magda’s insurance company said these were not bodily injuries and therefore were not covered in her policy. The court, however, disagreed. Richard had also said that, as a result of the emotional distress, he had experienced heart palpitations and chest pain—forms of bodily harm—and also suffered from anxiety, depression, and “adjustment disorder,” which he said should be seen as sickness or disease.

The court set aside the question of whether the emotional distress itself was “bodily injury” and focused only on these physical manifestations which, the court said, did indeed fall under the heading of “bodily injury,” so that the insurance company did have the obligation to defend Magda in court and, if she was found to be liable for negligent, might have to provide coverage for her.

See Liberty Insurance Corporation v. Korn, United States District Court, D. Delaware. September 27, 2016 210 F.Supp.3d 612.

Another question comes up if mental anguish and emotional trauma are viewed as included in the definition of “bodily injury.” If there is physical injury and emotional trauma—especially if one person is physically injured and another person suffers emotional distress as a result—are those to be considered two separate “bodily injuries”? If so, then the insurance company would have to cover each one separately and may end up paying up to the policy limits for each one. Or should the mental distress be seen as arising from the bodily harm, sickness, or disease, just as resultant care, loss of services, and death do? In that case, there is only one “bodily injury” and one policy limit for everything included in it.

Key Takeaway: Whether the term “bodily injury” can include mental anguish or emotional distress has been discussed and debated often in the courts. While some courts have found in favor of coverage even when the emotional or mental disturbance has no physical cause and no physical manifestations, those rulings are still in the minority. But if there are allegations of physical causes or manifestations of the emotional or mental distress, courts often do see those allegations as sufficient to require insurers to defend the insured and possibly to compensate them for damages.

Crabtree v. State Farm Ins. Co

In January 1990, Stephen Crabtree was riding his motorcycle when he was hit by an oncoming car that crossed the center line. His wife, Debra, was in an automobile behind him and when she got to him immediately after the accident, she found that one of his legs had been almost completely severed below the knee.

There was no question as to fault: Both parties agreed that the driver of the vehicle, James Vetter, was liable for the accident. The vehicle belonged to James’s father, Robert Vetter, who had a State Farm automobile insurance policy. The insurer agreed to cover the bodily injury. Both parties also agreed that Debra Crabtree suffered from severe emotional distress as a result of witnessing the accident and her husband’s injuries, and that, according to Louisiana law, she was entitled to recover damages for that emotional distress. The question, however, was whether her emotional distress was a separate bodily injury or whether it was part of her husband’s (broadly defined) bodily injury. State Farm argued that her distress arose from Stephen’s injury, and therefore the per person policy limit of $25,000 applied to both Stephen and Debra. Since Stephen’s care cost more than $25,000, there was no more left over to go to Debra.

The trial court agreed. The appeal court agreed. But the Supreme Court did not. It granted that Debra’s emotional distress arose out of Stephen’s injuries, but it saw her emotional distress as a second and separate injury that was nevertheless part of the same accident.

If Stephen had been knocked off his motorcycle into a pedestrian, thereby injuring the pedestrian, the pedestrian’s injuries would have arisen from Stephen’s, but they would not be considered as falling under the single person bodily injury limits. They would be seen as a second bodily injury, with its own limits, though still part of the same accident.

And so too, said the court, with Debra’s emotional distress. It should be treated as a second bodily injury—an injury to her—even though it arose from her husband’s accident and injury. And therefore the court required State Farm to pay up to the policy limits for each of the Crabtrees’ injuries.

See Crabtree v. State Farm Ins. Co., Supreme Court of Louisiana, February 28, 1994 632 So.2d 736.

Section 6: “Business”

3. “Business” means:

a. A trade, profession or occupation engaged in on a full-time, part-time or occasional basis; or

b. Any other activity engaged in for money or other compensation, except the following:

(1) One or more activities not described in (2) through (4) below, for which no “insured” receives more than $2,000 in total compensation for the 12 months before the beginning of the policy period;

(2) Volunteer activities for which no money is received other than payment for expenses incurred to perform the activity;

(3) Providing home day care services for which no compensation is received, other than the mutual exchange of such services; or

(4) The rendering of home day care services to a relative of an “insured.”

Copyright, Insurance Services Office, Inc., 1999, 2010

What: A business, as defined by the policy, is a trade, profession, or occupation—regardless of whether it is full-time, part-time, or occasional—or any other activity that one is involved in for money or any other form of compensation, with a few exceptions (volunteer activities, certain day care services, activities that do not pay any insured more than $2000 in a year).

When: The definition introduces time in its definition of business only to dismiss it. For the purposes of this policy it does not matter if the trade, profession, or occupation in question is full-time, part-time, or occasional. How much time one spends in a particular pursuit is not what determines whether it is “business” or not.

The homeowner’s policy is not a commercial policy, designed to cover businesses and their various possible risks and liabilities. Failure to clear the ice off the doorstep of your home and failure to clear the ice off the doorstep of your store may both result in someone’s injury, but the one affects you as a homeowner and the other as someone engaged in business pursuits and the policy intends to keep these liabilities distinct.

But there are also ways in which these categories overlap. For instance, many homeowners—or others who are insured under the homeowner’s policy—conduct some business at their homes. They may also store business-related materials at their homes or property, or they may have business-related materials with them when they travel. Since the policy is going to address which business-related activities and materials are covered and which are not, it first has to define what it means by “business.” “Business,” as the policy defines it, is “a trade, profession or occupation engaged in,” whether it is “on a full-time, part-time or occasional basis,” or “any other activity engaged in for money or other compensation.” The first part of the definition uses three terms: trade, profession, and occupation.

A trade is the work a person regularly does, a person’s employment or way of earning a living. In the past, a profession was understood to be a sort of work that requires special knowledge and preparation. But today, the term can apply to any form of work done for payment. An occupation is hard to distinguish from a trade; it, too, is regular employment done to earn money. The three terms overlap, but the point of including all three is to leave no loopholes, no gaps where one might say something like, “The work I’m doing isn’t mentioned in the policy. I don’t have a profession; I have an occupation.”

Cunningham v. Middle Georgia Mut. Ins. Co

In 1997, Glynn Cunningham was employed as a supervisor and quality control inspector for a roofing company. That March, C. R. Tidwell asked him to fix a leak in the roof of his rental property. Tidwell was Cunningham’s former pastor and a friend and Cunningham had done some repairs for him in the past as a favor. Usually, he didn’t charge Tidwell for the work or for expenses. In this case, Cunningham knew that a roofing company might charge $1200 for the job, but he agreed to do it for $500, which would cover his expenses with a little bit extra for his time and work.

To do the repairs, Cunningham used a propane blow torch to heat up the roofing material. When he was finished, over 45 minutes later, he cleaned up the site and went home. But though he didn’t see any sign of it while he was there, in the attic, near where he had been working, a fire had started, probably caused by the blow torch.

Tidwell did not pay Cunningham for the work, and his insurance company filed suit against Cunningham for negligently starting the fire. Cunningham’s insurer pointed out that his policy excluded claims arising from “business pursuits” and for “rendering … professional services.” Cunningham filed suit and the trial court sided with the insurer.

Cunningham appealed. The work, he said, was a favor to a friend, not a “business pursuit.” The appelate court agreed. While Cunningham did work for a roofing company and sometimes did labor for them, he was employed as a supervisor and inspector, not as a roofer. Roofing was not his “usual commercial or mercantile activity” and the amount of money he and Tidwell had agreed upon was mainly to cover expenses. The slight bit of profit from the remaining money did not make his work on the roof a “business” done for profit.

The court also addressed the question of whether Cunningham was “rendering professional services.” Cunningham argued that a profession is a “learned occupation, such as doctor or lawyer.” His insurer argued that a profession is just a “business or livelihood.” The court pointed out that the policy defined a business as “a trade, profession or occupation,” so that “profession” is a type of business. The two words, “profession” and “business,” don’t mean the same thing. As well, the policy implied elsewhere that “professional services” were distinct from other “business pursuits.” “Here,” said the court, “roofing is reasonably understood as a trade or occupation rather than a profession.”

Since Cunningham was not “rendering professional services” nor was he engaged in “business pursuits,” the court reversed the earlier ruling and obligated Cunningham’s insurer to defend him.

See Cunningham v. Middle Georgia Mut. Ins. Co., Court of Appeals of Georgia. June 16, 2004 268 Ga.App. 181601 S.E.2d 38204 FCDR 2060.

Furthermore, the policy says that it does not matter whether the trade, profession, or occupation is full-time, part-time, or occasional. The woman who works 60 hours a week as a lawyer and the man who works a few shifts a week at a bookstore are both involved in “business,” and so is the person who is employed as a wedding coordinator from time to time. Even if it’s not something one does very often, it’s still considered “business” for the purposes of this policy.

The words “part-time” and “occasional” indicate that the policy is not limiting “business” to one’s primary or full-time work. If a man works a full-time job Monday through Friday but has a part-time job on the weekends, that part-time job is also “business.” A second job or a sideline is still considered “business.” Nor is “business” limited to one’s regular work; a trade, profession, or occupation that a person is engaged in on occasion—perhaps when someone requests his or her services—is also considered “business” by the policy’s definition.

To make things even clearer, the policy adds more to the definition: “or any other activity engaged in for money or other compensation.” It is going to list a few exceptions, but apart from those exceptions, if you are involved in some activity in order to receive money or any other sort of payment, then you are engaged in “business” as the policy defines it.

Metropolitan Property and Cas. Ins. Co. v. Fitchburg Mut. Ins. Co

On September 27, 1995, Stephanie Button was working at her desk at CliniTech services, where she was employed as a lab assistant, when Patricia Trimble came in. Trimble was employed by CliniTech as a phlebotomist and was dropping off samples. But Button was so absorbed in her work that she hadn’t noticed Trimble walking past. As Trimble came past on her way back, she poked Button to catch her attention and said, “Hello.” Button was startled and fell off her chair and her back was severely injured.

Button filed suit against Trimble for “civil battery.” Trimble lived with her parents, whose homeowner’s insurance was with Metropolitan Property and Casualty. Metropolitan denied that it had any obligation to defend her or, in the event that the court found in favor of Button, to compensate Trimble for the damages. After all, the homeowner’s policy specifically excluded “bodily injury … arising out of or in connection with your business activities.”

Button objected on several grounds. First, she said that the battery—Trimble’s friendly poke—did not arise out of business activities. Trimble’s business activities included dropping off samples, but when she poked Button, she was not doing so as a business activity. She wasn’t furthering CliniTech’s business. In fact, by poking Button and talking to her, she was hampering Button from furthering CliniTech’s business. The court disagreed. The incident took place because Trimble was at work, performing a task for her employer, and so the alleged battery did “arise out of or in connection with” her business activities.

Button also argued that when the policy speaks of “business activities,” it is speaking only of activities carried out by the insured at the insured’s property. Again, the court disagreed, pointing out that the policy allowed a person to purchase optional coverage for certain business pursuits but not for others, such as being on the faculty of a school or college, which would be pointless if the word “business” in the policy was limited to income-earning work at the insured’s premises. Why, then, even mention business activities at other locations?

Besides, the court said, citing another ruling, “Clearly, the manifest design of homeowner’s insurance is to protect homeowners from risks associated with the home and activities related to the home.” The incident involving Trimble and Button took place, not at home but at their place of employment, and so Trimble could hardly expect that the homeowner’s policy would protect her. And so the court ruled in favor of the insurer who had denied Trimble coverage.

See Metropolitan Property and Cas. Ins. Co. v. Fitchburg Mut. Ins. Co., Appeals Court of Massachusetts, Middlesex. August 18, 2003 58 Mass.App.Ct. 818793 N.E.2d 1252.

In the case just mentioned, the court stated that the obvious purpose of homeowner’s insurance is “to protect homeowners from risks associated with the home and activities related to the home.” Home is home, and business is business. And yet the two do sometimes overlap, the lines are sometimes hard to draw, and questions often come before the courts.

In general, in determining if someone was engaged in a business, the courts consider two things: continuity and profit, or, more accurately, the profit motive. The policy itself addresses continuity when it says that it does not matter if the person is engaged in the trade, profession, or occupation on a full-time, part-time, or occasional basis.

The second thing courts consider in determining if someone was engaged in a business, as defined by the policy, is profit or, more accurately, the profit motive. A business is something you do with the intention of making a profit from it. But a business does not have to be making money to be a business. For instance, a person might start up a restaurant and have it open for a year or two before it starts bringing in a profit. In the meantime, most of the money that comes in goes to wages and other expenses. But even if the restaurant owner is not making a profit yet, his involvement with the restaurant is still business because not only is he continuously engaged in this activity, he is also doing the activity with the goal of making a profit from it. So, for instance, a hobby might grow to become a business. A man who loves woodworking and does it in his backyard shop in his spare time might begin selling bookshelves and cabinets that he has made. And for the purposes of the homeowner’s policy, the profit motive—doing the work in order to make money—turns the hobby into a business.

Not all courts, or all judges, have viewed things the same way. Sometimes seemingly small distinctions are brought out that affect the court’s ruling. And so courts have insisted that whether or not an activity is a “business” by the policy’s definition is something that must be determined on a case-by-case basis by a jury.

In some cases, what a person might regard as a hobby may be regarded by the court as a business because of the person’s future goals. An inventor may tinker with a project in his garage and not make any profit from it, but if his long-term goal is to make a profit from his invention, a court may still regard his activity as “business” and apply the policy’s business-related limitations and exclusions.

Another question that sometimes comes up in connection with the policy’s definition of “business” has to do with investors and board members.

In some cases, courts have also held that it is possible to be involved in business even without profit or a profit motive. A board member of a corporation, for instance, may hold that position without any compensation of any kind. But because he is a board member, any liabilities that arise in connection with the activity of the corporation would be considered “business activities” and his homeowner’s policy would not provide coverage for them.

Key Takeaway: While the distinction between business pursuits and non-business pursuits may seem clear at first glance, questions do arise and courts often evaluate them on a case-by-case basis.

Wiley v. Travelers Ins. Co

In the early 1970s, Wayne and Rose Wiley came to the home of a Mr. Geibe to purchase a St. Bernard puppy. Mr. Geibe worked as a salesman and traveled five days a week, but he also had a sideline job, breeding, raising, and selling St. Bernards. The Wileys alleged that while they were there to look at the puppies, Mrs. Wiley was attacked and injured by one of Mr. Geibe’s dogs.

Mr. Geibe’s homeowner’s policy did not include the line in the current policy about business that is conducted on a “part-time or occasional basis,” and so the question arose whether the injury arose from his business pursuits. Mr. Geibe argued that it did not. His insurer thought it did and that the policy therefore did not cover this injury.

The court addressed the issue from several angles. First, it pointed out that the policy definition did not limit “business” to one’s primary or full-time occupation or trade. In fact, the policy exclusion spoke about “business pursuits” and “activities,” and the fact that these words were not singular but plural indicated to the court that a person could have more than one business pursuit or activity. “Business” isn’t limited to one occupation or trade.

Second, the court noted that the policy’s exclusion itself had an exclusion. It states that when it excludes “business pursuits,” it’s not referring to “occasional or part-time business pursuits of a student not 18 years old.” But that implies that the exclusion does apply to anyone else’s “occasional or part-time business pursuits,” and therefore also to Mr. Geibe’s dog-raising activities.

Third, the court addressed the distinction Geibe attempted to draw between a hobby and a business. A business, he had said, is “what one does for a living,” but a hobby is “what one does for pleasure.” The court was not persuaded: “We believe this distinction is artificial. One’s livelihood may be, and hopefully is, one’s greatest pleasure.”

What makes the difference between a hobby and a business pursuit? The profit motive. “We believe the addition of a profit motive to an activity makes it a business pursuit…. In a business pursuit the profit motive, or purpose of profit, is important. Whether there is or is not actual profit is immaterial. Does a pursuit have to be successful from a profit standpoint before it is a business pursuit? If a business suffers a loss, was it not a business? The answers are obvious. Profit motive, not actual profit, makes a pursuit a business pursuit.”

This was not an instance of a dog owner giving away or selling his pet dog’s puppies. The court noted that Mr. Geibe had renovated his barn and fenced his yard to make it possible to raise St. Bernards. He put up a big sign in his yard with a picture of a St. Bernard and the word “Puppies” on it. He advertised in the newspaper. Clearly, said the court, this was a business. And the goal of the homeowner’s policy was “to insure a home and not a business.” The court ruled in favor of the insurer.

But it is also important to note that in this case, one judge strongly disagreed with the majority’s ruling, and his dissent is sometimes cited in other court rulings. He noted that Geibe did not regard raising and selling St. Bernards to be his trade, profession, or occupation. In their common dictionary definitions, those terms refer to one’s manner of making a livelihood. Geibe made his livelihood as a traveling salesman, not as a St. Bernard breeder.

The judge also pointed out that Geibe had never applied for a kennel permit, which he would have had to do if he had more than four adult dogs there. But in fact, on the day of Mrs. Wiley’s injury, he had only three adult dogs and a litter of puppies at the property.

Finally, the judge concluded that Geibe raised these dogs “for the fun of it and that profit was an incidental consideration.” At any rate, he said, if reasonable people would differ over whether Geibe’s activity was a business or a hobby, then the court should recognize the ambiguity and rule in favor of the insured against the insurer.

See Wiley v. Travelers Ins. Co., Supreme Court of Oklahoma. November 19, 1974 534 P.2d 12931974 OK 147.

Asbury v. Indiana Union Mut. Ins. Co

Ever since he was a child, Dean Asbury had loved to hunt. He was a mill operator at Prowler Industries, but in his spare time he hunted for sport. He owned trained coon dogs, took part in contests, and won trophies. Every Fall, Asbury hunted and then sold the skins of animals he had killed. From these sales, he made about $1500 in 1977, $2500 in 1978, and $4100 in 1979. Because he was not a licensed animal fur dealer, he was obligated to sell or dispose of all the skins in his possession by a certain date each year.

In the Fall of 1980, by his estimate, Asbury had the pelts of 117 raccoons and 11 foxes in the deep freeze in his barn. But that December, someone broke the locks on the barn and freezer and stole the animal pelts, which were valued at approximately $3500.

Asbury filed a claim with his insurer, but the insurer said that the loss was not covered by the homeowner’s policy. The policy explicitly stated that the insurer did not cover “business property in storage or held as a sample or for sale or delivery after sale.” “Business” was defined as including “trade, profession or occupation.”

Asbury filed suit against his insurer. The insurer wanted the trial court to dismiss the case because the stolen pelts were business property and therefore their loss was not covered. The trial court did not dismiss the case but examined whether, in fact, the skins were business property. In the end, the trial court granted a summary judgment—a judgment without a trial—in favor of the insurer, pointing out that Asbury had sold skins in the past, that he had the skins stored for the purpose of selling them, and that the word “business” in the policy would include a part-time trade, profession or occupation. They also said that while hunting was Asbury’s hobby, selling the skins with the hope of making money from the sale was a form of business.

Asbury appealed the trial court’s decision, arguing that the insurance policy was ambiguous. It did define “business” as a “trade, profession, or occupation,” but it did not define “business property.” Asbury had thought “business property” meant property relating to his occupation as a mill operator. Furthermore, the insurance policy insured against loss of furs by theft for up to $500, and Asbury thought it was reasonable to conclude that his furs were covered. At any rate, he said, it was wrong for the trial court to have granted the insurer a summary judgment. Whether or not the sale of the animal pelts was a business and the animal pelts themselves were business property should have been decided by a jury.

The appellate court reviewed numerous cases, noting even the dissent of the one judge in the Wiley case described above. The court said, “While each case is fact-sensitive for determining whether a particular activity is ‘business’ or involves ‘business property,’ the controlling rule in Indiana is … that an insured is engaged in business only when he pursues a continued or regular activity for the purpose of earning a livelihood.”

In this case, the court recognized that Asbury’s livelihood came from his work as a mill operator and that hunting and skinning animals was his hobby. It was reasonable for Asbury to think of the pelts as his personal property, not property related to his business—that is, his employment—and to think that they were covered, given that the policy explicitly stated that furs were covered up to $500. “Simply because Mr. Asbury received money for an activity incidental to his occupation and which he considered his hobby does not make it ‘business property,’ … especially where the exclusion does not clearly define it as such.”

In fact, the court also noted another possible ambiguity which Asbury had not spotted. The policy limit of $500 applied to “furs,” but were the pelts “furs”? According to a dictionary’s definition, furs are dressed pelts and pelts are undressed animal skins. By that definition, the stolen pelts were not furs and so the coverage for them would not be limited to $500.

The appellate court reversed the trial court’s summary judgment so that there would have to be a jury trial to determine if the activity really was “business” and the property “business property.” In so doing, the court made this point: “Whether an activity is a ‘business’ or property is ‘business property’ under an insurance policy is almost always a factual question presented for determination by the trier of fact or jury.”

See Asbury v. Indiana Union Mut. Ins. Co., Court of Appeals of Indiana, First District. October 26, 1982 441 N.E.2d 232.

West Virginia Ins. Co. v. Jackson

Richard Bessette once worked in the seafood business, and at some point became interested in developing a method to extend the life of lobsters and shellfish. In his garage, he built three “marine life support systems” and began carrying out experiments. To that end, he borrowed money from a number of people, one of whom testified later that Bessette had promised to repay him if one of his systems turned out to work and be marketable. Bessette bought marine animals, carried out experiments, and gave away the survivors or sold them at lower-than-market prices.

In August 1993, lightning struck the garage and caused a fire that damaged Bessette’s marine life support systems. Bessette claimed a loss of $21,248. The insurer regarded Bessette’s experimentation as a business and limited liability to $2500. Bessette protested that his experimentation was a hobby, not a business. He wasn’t making money from it. The trial court granted summary judgment in favor of the insurer and Bessette appealed.

The appellate court, however, did not accept Besssette’s arguments. That Bessette’s experimentations weren’t his way of making a living didn’t matter. Nor did the fact that the experiments had not yet become profitable. Even though he had not succeeded in making a marine life support system that he could market, the court said, “he was engaged in an attempt to create a marketable technique for extending the shelf life of marine life and sold the lobsters in connection with that goal. He borrowed funds to advance this enterprise. This was not a pursuit simply designed for personal gratification, and to classify it as merely a hobby would be inaccurate.” Bessette’s experiments still had a profit motive and the court viewed them as a business venture.

See West Virginia Ins. Co. v. Jackson, Supreme Court of Appeals of West Virginia. July 11, 1997 200 W.Va. 588490 S.E.2d 675.

Shapiro v. Glens Falls Ins. Co.

In 1961, Alexander Shapiro paid $10,000 to become a limited partner in the Irving Place Realty Company. As a limited partner, he did not control any of the partnership’s business nor did he have authority to act for the company. He simply received a share of the profits. In 1967, the general partners decided to sell their only remaining property and wrap up the partnership, but Shapiro disapproved and for four years things were still not settled. Then, Shapiro wrote to the other limited partners and spoke to some of them in a way that the general partners took to be slanderous.

Shapiro’s insurer refused to defend him in court because the matter arose out of his “business pursuits.” The court favored the insurer, since the matter had to do with a business in which Shapiro was a partner, namely, the Irving Place Realty Company. One judge, however, disagreed. The policy defined “business” as “a trade, profession or occupation,” and Shapiro’s involvement in the Irving Place Realty Company was none of those things. “Business pursuits,” said the judge, shouldn’t be interpreted in such a way that it includes financial investments, where the investor has no duties or obligations or involvement in the day-to-day conduct of the company and doesn’t expend any time or labor on it. If that sort of investment is a “business pursuit,” then anyone who owns even a single share of stock in any company is involved in “business pursuits” and that would be absurd.

Ordinary reasonable people wouldn’t take a limited partnership of this sort or a passive investment where the investor does nothing and has no obligations or authority as a “business pursuit.” And so, the judge said, the policy is at least ambiguous and should be interpreted in favor of coverage for Shapiro. But the judge’s written dissent in this case indicates that the judge had failed to persuade the other judges of his opinion.

See Shapiro v. Glens Falls Ins. Co., Supreme Court, Appellate Division, Second Department, New York. March 31, 1975 47 A.D.2d 856365 N.Y.S.2d 892.

Smyth v. USAA Property & Casualty Ins. Co

Theodore H. Smyth was an outside director of the corporation that owned a hotel in San Juan, Puerto Rico. When there was a fire at the hotel that resulted in several injuries and deaths, the lawsuit that resulted included him. He had a homeowner’s policy with USAA Property and Casualty and expected them to defend him in the lawsuit. But they disagreed. The lawsuit had to do with Smyth’s involvement in the hotel, and the policy excluded coverage for “business pursuits.”

Smyth brought a legal action against his insurer and the trial court dismissed it. Smyth then appealed, arguing that the policy’s terms were ambiguous and that his involvement in the corporation as an outside director was not “business,” that is, not a trade, profession, or occupation. Smyth had become a board member of the corporation as a favor to a friend and he received no compensation for serving in that role. It wasn’t something he did in order to earn a livelihood, and there was no profit motive. His involvement, he said, was minimal.

Nevertheless, the appellate court concluded that the lack of profit or a profit motive did not mean that Smyth’s involvement in the hotel was a “non-business pursuit.” It certainly wasn’t the sort of pursuit one would expect a homeowner’s policy to cover. “The critical question raised is whether or not an insured has any possible reasonable expectation of coverage under these homeowners policies for engaging in activities of a directorship of a corporation owning a large resort hotel. The answer is no…. Regardless how benevolent Smyth’s own motivations were or how minimal his involvement, the activity involved is a business activity subject to exclusion under these policies.”

See Smyth v. USAA Property & Casualty Ins. Co., Court of Appeal, Second District, Division 6, California. April 30, 1992 5 Cal.App.4th 14707 Cal. Rptr.2d 694.

Exceptions

As we’ve seen, the policy’s definition of “business” contains two parts. “Business” is defined first as “a trade, profession or occupation engaged in on a full-time, part-time or occasional basis.” Then the policy adds a second, supplemental definition: “or any other activity engaged in for money or other compensation.” All activities that one does in order to make money—or to receive any other sort of payment—are considered “business,” but there are four exceptions. These four exceptions are forms of business activity that are considered minor enough not to be excluded under the homeowner’s policy.

b. Any other activity engaged in for money or other compensation, except the following:

(2) Volunteer activities for which no money is received other than payment for expenses incurred to perform the activity;

(3) Providing home day care services for which no compensation is received, other than the mutual exchange of such services; or

(4) The rendering of home day care services to a relative of an “insured.”

(1) The first exception is any activity (a) that is not one of the other three exceptions and (b) for which any insured receives a total of $2000 or less in the twelve months leading up to the time when the policy begins or is renewed. If Mr. Jones does small engine repairs in his garage and earns $1000 in the twelve months before his policy renews, his small engine repair work is not considered “business” by the policy’s definition. If a customer comes to pick up a lawnmower and trips over a tool Mr. Jones left lying around and is injured, Mr. Jones’ homeowner’s policy would provide legal defense if needed and coverage for that loss. The policy does not cover injuries arising from “business,” but Mr. Jones has not earned enough in the last twelve months from this work for it to be considered “business.” If he earned more than $2000, it would be considered business. But so long as his total earnings are $2000 or less, it would not. The policy’s limitations and exclusions related to business would not apply to Mr. Jones’s small engine repair work.

The exception speaks of “no insured” earning a total of more than $2000, and therefore it concerns individual insureds. There may be several insureds in the household—for instance, two parents and a teenage son. But the limit of total compensation applies to each individual, not to all the insureds in the household together. If Dad does some lawn care and earns $1500 and his teenage son comes along sometimes and earns $600, that’s not considered $2100—$100 over the $2000 limit—so that Dad and Son are involved in “business” by the policy definition. Rather, each individual has earned less than $2000 and therefore each individual’s activity is still covered by the homeowner’s policy.

It is important to note that the exception has to do with how much any insured receives in compensation “for the 12 months before the beginning of the policy period.” Think of Mr. Jones doing small engine repairs in his garage from time to time. Suppose he earns $1500 in the first month of a new policy year, $100 a month for the next six months, and then nothing after that. When he comes to the date on which his policy renews, his total compensation from that work over the last twelve months comes to $2100. Even though he hasn’t earned anything from that work in the last five months, his small engine repair work would still be considered “business” by the policy’s definition and would not be covered when the policy renews. If he engages in that work for compensation again in the month after the policy renews and a customer comes to his property and is injured, his work would be considered “business” and there would be no coverage for that injury.

But now think of a different scenario. Suppose Mr. Jones’ total earnings in the twelve months before his policy renewed were only $1800. When the policy renews, his small engine repairs are not considered “business.” If his customer is injured at any point in the next twelve months, his coverage for that loss is still intact. It’s possible that Mr. Jones earns more from small engine repairs in these next twelve months than he did in the previous twelve months. Four months into the year, he’s already passed $2000 in total earnings. But even so, his small engine repairs are not yet considered “business.” The time period that matters is the twelve months before the policy period begins and in those twelve months, Mr. Jones had not earned more than $2000 from small engine repair.

But notice what happens now. During these twelve months, Mr. Jones may be earning a lot from small engine repair and he still has coverage because his work is not considered a business. But when those twelve months are up and his policy renews and a new policy period begins, his total earnings for those twelve months are greater than $2000 and therefore his small engine repair work is now considered a business and is no longer covered under his policy. Again, that’s true even if his earnings drop dramatically in this next year and he barely earns anything from small engine repair.

Whether or not some activity is considered a business does not depend on how much Mr. Jones is earning right now or how much he’s earned already in the course of a year. It depends on how much he earned from that work in the twelve months before the policy period began, that is, before his policy started in the first place or before it renewed. As a result, he may end up with coverage in a year when he’s making lots of money and he may end up without coverage in a year when he isn’t earning very much at all.

(2) The second exception is “volunteer activities for which no money is received other than payment for expenses incurred to perform the activity.” Volunteer activities may take many forms, but the thing that makes them volunteer activities is that the person performing them is not hired and paid. He may be reimbursed for expenses, but he is not profiting as a result of the work.

An insured may come to a family member’s house to renovate his bathroom. He may be reimbursed for travel expenses. Perhaps the family member values his skills highly enough to have him fly across country to do the work and reimburses him for the plane ticket. The insured may also run up some bills buying supplies or having the debris hauled away, for which the family member can reimburse him. Those expenses are not profit. The work is voluntary work, done for free, and it is not considered “business” by the policy’s definition.

But volunteer activity is not limited to a one-time project such as a bathroom renovation. It may be regular. Mrs. Smith may go regularly to a nursing home to help take care of residents. If the nursing home reimburses her for her mileage, that is not considered profit. If she is helping a resident and accidentally does something that leads to the resident slipping and falling and the resident sues her, she can expect to be covered by her homeowner’s policy. The limitations and exclusions relating to “business” in her homeowner’s policy do not apply to her regular voluntary work at the nursing home.

(3) The third exception is the provision of “home day care services for which no compensation is received, other than the mutual exchange of such services.” Exception (2) above involved voluntary activity, activity done for free. That is not the case here. Of course, home day care services could be done for free, but exception (3) goes further and includes home day care services that involve a certain sort of compensation, namely, “the mutual exchange of such services.”

Mrs. Brown and Mrs. Green may set up an arrangement in which Mrs. Brown watches Mrs. Green’s children on Monday afternoons and Mrs. Green watches Mrs. Brown’s children on Tuesday afternoons. This is not a spontaneous agreement (“Could you watch my kids today?”), which would be a volunteer activity and for which one mother might even reimburse the other for gasoline expenses. That would fall under exception (2). But this is a set arrangement in which each mother does get “paid” or compensated in some way. Mrs. Brown’s “payment” or compensation for watching Mrs. Green’s children on Monday is having Mrs. Green watch her children on Tuesday, and vice versa. As long as that exchange of services is the only compensation either mother receives and there’s no other payment, the policy does not consider this activity as “business,” subject to the policy’s limitations and exclusions on “business” pursuits.

The policy does not indicate that this “mutual exchange of services” has to be exactly equal. It is still a “mutual exchange of services” if Mrs. Brown watches Mrs. Green’s children three afternoons a week and Mrs. Green watches Mrs. Brown’s children only one afternoon a week. Obviously, Mrs. Brown is receiving more hours of day care than Mrs. Green, but the policy does not require equality, only mutuality. The policy does not define “day care services.” We might think of day care services as child care, but dictionary definitions extend the term so that it includes care for the physically or mentally disabled, as well as for the elderly. Mrs. Brown might have an arrangement in which she watches Mrs. White’s children on Wednesday, while Mrs. White watches Mrs. Brown’s elderly mother on Thursday. That, too, would be a “mutual exchange of such services.”

(4) The fourth exception also involves home day care services, this time “the rendering of home day care services to a relative of an ‘insured.’” A grandmother who comes over to her daughter’s house on Monday afternoons to watch her grandchildren while her daughter goes shopping is not doing work that the homeowner’s policy would define as “business.” So, too, if Barbara takes care of her elderly aunt, that activity is not considered “business” by the policy’s definitions. As with Exception (3), the policy does not define “day care services.” Dictionaries define “day care” to include not only care of children, but also care for the physically or mentally disabled and for the elderly. Exception (2) spoke about voluntary work, for which there was no compensation. Exception (3) spoke about activity for which there was compensation, but only the compensation of the mutual exchange of day care services. But Exception (4) does not say anything about compensation at all. According to the policy, day care services for an insured’s relative are not considered “business,” regardless of whether there is payment or compensation for them. The $2000 limit in Exception (1) does not apply to Exception (4).

Key Takeaway: The homeowner’s policy regards as “business” all activity that is done to make money or to receive other forms of compensation, with four exceptions: work other than volunteer work or day care services for which an insured earns $2000 or less in the twelve months before the policy is renewed or begins; volunteer work with expenses reimbursed but no compensation; day care services with no compensation except an exchange of such services; and day care services done for a relative of an “insured,” even if there is compensation.

Section 7: “Employee”

4. “Employee” means an employee of an “insured,” or an employee leased to an “insured” by a labor leasing firm under an agreement between an “insured” and the labor leasing firm, whose duties are other than those performed by a “residence employee.”

Copyright, Insurance Services Office, Inc., 1999, 2010

Who: When the policy speaks of an “employee,” it is speaking of anyone who is employed by an insured or who has been leased by an insured from a firm under an official agreement between the insured and the firm. The policy distinguishes “employees” from “residence employees,” a term defined later in the policy.

Although this is the Definitions section, the policy actually leaves the word “employee” undefined. In fact, it defines the term by using the term itself: “‘Employee’ means an employee….” What that would mean in practice is that if there were questions about whether a particular individual is an employee or not, a court might rely on standard dictionary definitions of “employee.” By those definitions, an employee is someone who gets paid to work for someone else or for a company. The American Heritage Dictionary of the English Language, 5^th edition, defines an employee as “A person who works for another in return for financial or other compensation.”

The policy takes for granted this sort of definition of “employee.” But what it particularly focuses on is who the employee is working for and what the employee’s duties are.

First, the policy deals with who the employee is working or. When the policy speaks about an “employee,” it is not speaking about an employee in general, such as an employee of a store that an insured visits or an employee of the Post Office who delivers mail to the insured’s home. It is speaking specifically about a person who is employed by and is working for an insured—not necessarily the named insured, but anyone who is insured under the policy. But the policy also recognizes that not all people who are working for an insured are hired directly by the insured. It is possible for a firm to supply a worker to a business or to an individual, either temporarily or long-term. The worker is employed by the firm, but is working for the business or individual. There is an agreement between the business or individual and the firm. The business or individual leases the worker from the firm and pays the firm a regular amount to do so, and the firm pays the worker. These sorts of employees—employees of a labor leasing firm, such as a temp agency—who are leaded to anyone insured under the policy are also considered employees in the policy provisions.

Second, the policy deals with what the employee’s duties are. The policy distinguishes between an employee and a residence employee. Of course, a residence employee is a type of employee, but the residence employee is an employee with certain specific duties, which are specified later when the term “residence employee” is defined. The general term “employee” is used consistently in the policy to refer to other employees, employees whose duties are not “those performed by a ‘residence employee.’” The reason this distinction is important is that the policy provides different coverage for residence employees than it does for all other sorts of employees. For instance, there is personal property coverage for residence employees, but not for other employees. If an incident occurs that involves an employee—either hired directly by anyone insured under the policy or leased from a labor leasing firm—the question is first whether he or she is an employee of an insured and, second, whether he or she is a residence employee or an employee, according to this policy definition.

Key Takeaway: The homeowner’s policy defines an “employee” in terms of who the employee is working for and what the employee’s duties are. An “employee” in the policy is not just anyone’s employee but specifically someone who works for an insured, whether hired directly by the insured or leased from a firm. And an “employee” is any employee whose duties are not those of a “residence employee,” as that term is defined later in the policy. The policy treats an “employee” and a “residence employee” differently.

Section 8: “Insured”

There are minor differences between the 2000 version of the HO-3 and the 2011 version. Although the newer version has superseded the old one, some states do continue to use the older version, and so we will discuss both of them. It should be noted, though, that the differences are in wording, not in content.

HO 00 03 10 00—2000 Version

5. “Insured” means:

a. You and residents of your household who are:

(1) Your relatives; or

(2) Other persons under the age of 21 and in the care of any person named above;

b. A student enrolled in school full-time, as defined by the school, who was a resident of your household before moving out to attend school, provided the student is under the age of:

(1) 24 and your relative; or

(2) 21 and in your care or the care of a person described in a.(1) above; or

c. Under Section II:

(1) With respect to animals or watercraft to which this policy applies, any person or organization legally responsible for these animals or watercraft which are owned by you or any person included in a. or b. above. “Insured” does not mean a person or organization using or having custody of these animals or watercraft in the course of any “business” or without consent of the owner; or

(2) With respect to a “motor vehicle” to which this policy applies:

(a) Persons while engaged in your employ or that of any person included in a. or b. above; or

(b) Other persons using the vehicle on an “insured location” with your consent.

Under both Section I and II, when the word an immediately precedes the word “insured”, the words an “insured” together mean one or more “insureds”.

Copyright, Insurance Services Office, Inc., 1999. Italics added.

HO 00 03 05 11—2011 Version

5. “Insured” means:

a. You and residents of your household who are:

(1) Your relatives; or

(2) Other persons under the age of 21 and in your care or the care of a resident of your household who is your relative;

b. A student enrolled in school full-time, as defined by the school, who was a resident of your household before moving out to attend school, provided the student is under the age of:

(1) 24 and your relative; or

(2) 21 and in your care or the care of a resident of your household who is your relative; or

c. Under Section II:

(1) With respect to animals or watercraft to which this policy applies, any person or organization legally responsible for these animals or watercraft which are owned by you or any person described in 5. a. or b. “Insured” does not mean a person or organization using or having custody of these animals or watercraft in the course of any “business” or without consent of the owner; or

(2) With respect to a “motor vehicle” to which this policy applies:

(a) Persons while engaged in your employ or that of any person described in 5. a. or b.; or

(b) Other persons using the vehicle on an “insured location” with your consent.

Under both Sections I and II, when the word an immediately precedes the word “insured”, the words an “insured” together mean one or more “insureds”.

© Insurance Services Office, Inc., 2010. Italics added.

Who: The policy identifies three classes of people as “insured”:

(1) The named insured, a resident spouse, and other resident relatives, as well as any resident under 21 who is in the care of the named insured or a resident relative;

(2) A full-time student who was a resident of the household before moving out to go to school and who is younger than 24 and a relative of the named insured or younger than 21 and in the care of a resident relative; and

(3) with respect to liability coverage, any person or organization that is legally responsible for animals or watercraft owned by someone in the first two categories; a person employed by someone in those first two categories, if a motor vehicle covered in the policy is involved; and a person who is using a motor vehicle that is covered by the policy, so long as that use is on the insured location and with the consent of the named insured.

Of all the definitions in the policy, the definition of “insured” is certainly the most important. It is possible to understand most of the policy without knowing for sure whether your moped is a motor vehicle, whether your weekly babysitting is “business,” or whether your friend who has come over to fix your dishwasher is an “employee.” It is not possible to understand the policy without knowing what the policy means by the word “insured.” Every definition and almost everything else in the policy has to do with an “insured.”

When the policy uses the term “insured” by itself, it is speaking of persons. It defines the word using terms such as “you,” “residents,” “relatives,” and (several times) “person” or “persons.” It is not speaking about an insured vehicle, an insured rowboat, an insured activity, or an insured house. When the policy does want to speak about an insured location, it uses both words: “insured location.” But whenever it uses the word “insured” only, it is speaking of certain persons who are insured under the policy. The policy also makes clear in the last line of the definition that when the policy speaks of an “insured”—the word “insured” with an “an” in front of it—it is not limiting itself to one particular insured person. Everywhere that term appears, it refers to “one or more ‘insureds.’”

The policy’s definition of the term “insured” includes three classes of people, the first two throughout the policy and the third class only when it is a question of liability.

(1) The first class of people included in the policy’s definition of “insured” consists of three groups of people: the named insured and a resident spouse, other resident relatives, and any resident under 21 who is in the care of one of the aforementioned people. The policy speaks first about “you,” and as we have seen above, everywhere it appears in the policy the word “you” refers to the named insured—the person or persons whose names are on the Declarations page of the policy—as well as a spouse, if that spouse is a resident of the named insured’s household. So, for instance, Mr. Ellis may be the named insured on the policy. His wife, who is living in his household, is also an insured, included in “you” and “your,” even if she is not named on the Declarations page. See the discussion of the policy’s definition of “You” above.)

The policy then goes on to speak about “residents of your household who are your relatives.” Here, too, the word “your” refers to the named insured as well as to a spouse who is a resident of the named insured’s household. Relatives of the named insured or of a resident spouse, if they are residents of the named insured’s household, are also insured under the homeowner’s policy. If Mr. Ellis is the named insured on the policy, his three children who live in his household are also insured under the policy. So, too, is his wife’s elderly mother who lives with them.

The policy also includes “residents of your household who are other persons under the age of 21 and in your care”—that is, the care of a named insured and/or a resident spouse—“or the care of a resident of your household who is your relative.” (That is the wording of the 2011 edition of the HO-3. The 2000 edition said “in the care of any person named above.” The policy intended those words to refer to “you” and “residents of your household who are your relatives.” But because the word named was used, the question was raised in some courts whether that phrase referred only to the named insured. The 2011 wording, although somewhat clunkier, removes the possibility of the policy being viewed as ambiguous.)

The meaning and application of the various phrases used in the policy—“relative,” “resident,” “household,” and “in the care of”—have sometimes been discussed and disputed in the courts.

Relatives

The policy does not define the term “relative.” Courts would therefore rely on common dictionaries to define the term. The Merriam-Webster dictionary, for instance, defines “relative” as “a person connected with another by blood or affinity” (https://www.merriam-webster.com/dictionary/relative) and defines “affinity” as “relationship by marriage” (https://www.merriam-webster.com/dictionary/affinity), including not only the relationship between the spouses but the relationship that each spouse has, as a result of the marriage, with the relatives of the other spouse (e.g., in-laws, stepchildren). Other dictionaries also include a connection by adoption.

When the policy speaks of “your relatives,” then, it is speaking of persons who are connected to the named insured or a resident spouse by blood or adoption or marriage. Relatives by blood include biological children, parents, grandparents, siblings, nephews and nieces. An adopted child is not related to its parents by blood, but is nevertheless now their child and therefore a relative. In some court cases, even an unborn child has been viewed as a relative according to the policy’s definitions.

Alabama Farm Bureau Mut. Cas. Co. v. Pigott

In January 1979, Tammy Pigott was injured in an automobile accident near Northport, Alabama. The driver of the car—an uninsured motorist—died and Tammy was left in a coma, in which state she gave birth to a son, Patrick Pigott, who died a day later. At the time of birth, his gestational age was estimated to be between 28 and 30 weeks, so that at the time of the accident his gestational age would have been between 19 and 21 weeks.

Tammy had been living with her mother and her adoptive father, Thad Pigott, who had not known she was pregnant. When she gave birth, she was still comatose and so Thad Pigott became the guardian of her estate and administrator of Patrick Pigott’s estate.

Alabama Farm Bureau had issued Thad Pigott automobile liability insurance policies but said that the medical payment provisions and uninsured motorist provisions did not apply to Patrick Pigott because he was not a relative resident in Thad Pigott’s household. The trial judge disagreed.

Alabama Farm Bureau appealed, citing Roe v. Wade in support of the view that an unborn child between 19 and 21 weeks of gestational age is not “viable” and therefore is only a “potential human life” and “not a person in being at that stage of its existence,” and therefore could not be an insured person.

Pigott pointed to previous cases in which courts declared that unborn children could inherit property and share in life insurance proceeds and that the death of an unborn child could “support an action for wrongful death.” In this case, Patrick Pigott was injured as a fetus, born alive, and then died as a result of the injuries, and therefore Thad Pigott could bring charges against the estate of the driver of the vehicle.

The Supreme Court of Alabama agreed with the trial court: “the unborn child, subsequently born alive and named Patrick Pigott, was within the class of insureds” and therefore Farm Bureau should have provided uninsured motorist and medical payments coverage.

Three judges, however, dissented: “To stretch the phrase ‘resident of the same household,’ so that it encompasses an unviable fetus would be an exercise in verbal gymnastics and would torture logic, unwarranted under the circumstances.” The biological relationship, a dissenting judge said, is not the only factor. The phrase “resident of the same household,” “given its ordinary, everyday meaning, connotes a relationship involving some degree of social interaction in which a fetus could not engage.”

See Ala. Farm Bureau Mut. Cas. Co. v. Pigott, 393 So.2d 1379 (Ala.1981).

The named insured’s spouse is, of course, related to him or her by marriage (see the discussion of the policy’s definition of “You” above). But there are other relations by marriage that are also included. A named insured’s daughter-in-law, for instance, is related to the named insured by marriage to the named insured’s son. A spouse’s son from a previous marriage is the stepson of the named insured. In some cases, however, questions have been raised about whether someone is a relative and about whether the term “relative” in the policy is ambiguous. For instance, how close in kinship does a relative have to be in order to be considered a “relative”? The policy does not define the term “relative,” and the standard definition—“a person connected with another by blood”—doesn’t establish any limit. Is a first cousin a relative? Surely. A second? Probably. A third, where the persons share only a great-great-grandfather in common? Or does it even matter, given that they are related by blood, however distantly, if they are residents of the same household?

Frost ex rel. Anderson v. Whitbeck

Tina Frost and Doreen Whitbeck met when they were teenagers and maintained contact over the years. Doreen’s mother told them that they were relatives. It appears that they had the same great-great-grandfather and that their great-grandfathers were brothers, which would make Tina and Doreen third cousins, separated by eight degrees of kinship. Tina’s daughter Brittany would be a third cousin, separated by nine degrees of kinship.

In May 1996, when Tina Frost divorced, she and Brittany, who was six years old, moved from their home in Kentucky to stay at Doreen Whitbeck’s home in Wisconsin. On June 4, Whitbeck’s dog allegedly bit Brittany. The Frosts moved out for a month, but then moved back again. On November 20, the dog allegedly bit Brittany a second time. This time, Tina and Brittany moved back to Kentucky. Three years later, they filed suit against Whitbeck and her insurer.

The insurer, American Family, moved for summary judgment. The policy explicitly stated that it did not cover injuries to a resident relative. The Frosts and Whitbeck were third cousins and therefore were relatives. They were living in Whitbeck’s house at the time of the alleged dog bites and therefore were resident relatives. And so Whitbeck’s homeowner’s policy did not provide coverage for these injuries.

The trial court granted summary judgment in favor of the insurer, but the court of appeals reversed that decision, claiming that the term “relative” was ambiguous and that therefore the policy should be interpreted in favor of coverage for the injuries. When American Family appealed, the Supreme Court of Wisconsin affirmed the decision of the court of appeals.

American Family insisted that the word “relative” is not ambiguous and that, by definition, “a person related to another by blood” is a relative, “no matter how distant or remote the connection.” The court, however, judged that the word as used in the policy is ambiguous, an “indefinite, elastic, intrinsically imprecise word.”

While the policy can be read to include all blood relatives, “no matter how distant or remote the connection,” that is not the only way the term “relative” can be understood. If we accept what the Bible says about Adam and Eve, then we can all trace our ancestors back to them and all of us are related to each other. How far back in a genealogy do we want to go before we stop calling someone a “relative”? Even the counsel for American Family admitted that “one has certainly to draw the line.” The policy, however, leaves open the question of where that line is to be drawn and thereby leaves the word “relative” ambiguous—and so the court ruled against American Family and in favor of coverage for the policyholder.

The court went further and said that a “reasonable policyholder” would not take the term “relative” to refer to anyone related by blood, how matter how distant that relationship was, especially since the term was used alongside the phrase “resident of your household.” Most likely, such a person would take the term to refer “only to close family members, in terms of degrees of kinship,” not to people separated by eight degrees of kinship.

American Family had also brought up the purpose of the exclusion of resident relatives in the policy. With relatives, there is the possibility of collusion, that is, the possibility that relatives might agree together to commit insurance fraud, to make a false claim and file suit and give testimony and so on, with the intent of getting money from the insurance company. The court agreed with that interpretation of the purpose of the exclusion but thought, again, that it supported their insistence that the term “relative” in the policy refers to close family members, the ones who would be more likely to collude, not to relatives who are separated by eight degrees of kinship. The Supreme Court ruled, then, against American Family and in favor of coverage for Whitbeck in connection with the alleged dog bites.

Three of the judges, however, dissented. The judge who wrote the dissent argued that the word “relative” is not ambiguous. “I agree with the majority that blood relations cannot and should not be interpreted to trace back all the way to the beginning of the human race,” he said, “but this case does not call for such an interpretation.

Here, we have two people that are third cousins, related by blood, who know and acknowledge that they are related. When people are related by blood and recognize each other as a “cousin,” they are, by definition, relatives.”It is possible to have two people who are related but so distantly that they don’t even know it. But that wasn’t the case here. Frost and Whitbeck knew they were related. They spoke of each other as “cousins.”

A review of all the relevant cases, even the ones where courts found the term “relative” to be ambiguous, shows that every court recognizes that people related by blood are “relatives.” “The majority fails to cite a single case in which a court has found that a person related by blood to another is not a relative. That portion of the definition of ‘relative’ is clear and unambiguous.”

“Frost and Whitbeck,” said the judge, “were more than just good friends. They were blood relatives and they recognized the fact—and it would have been reasonable for Whitbeck to take that into consideration, in terms of her insurance coverage, when the Frosts were living with her. There is no reason a reasonable policyholder who had someone she regarded as a relative living with her would think that the term “relative” in the policy is limited to family members who are close in terms of degrees of kinship. Frost and Whitbeck were third cousins, but they had a close enough relationship that they were willing to share a home together. “If blood relatives are close enough to share a home, they are close enough to consider the implications of that arrangement for insurance purposes.”

Furthermore, if relatives—however distant in degrees of kinship—are close enough to share a home, they are also close enough that they could potentially collude to commit insurance fraud, which is what the policy’s exclusion of coverage for resident relatives is intended to prevent.

In short, said this judge, the court didn’t need to decide—arbitrarily—what degree of kinship is a relative and what degree of separation makes one not a relative. Frost and Whitbeck were related by blood, they saw themselves as relatives and told people they were relatives, they had a close enough bond to share a house, and they had as much potential to be involved in collusion as closer resident relatives would have—and therefore Whitbeck should have recognized that her policy’s definition of a “relative” applied to the Frosts. These judges would have reversed the decision of the court of appeals and judged in favor of American Family and against coverage for Whitbeck for Brittany Frost’s injuries.

See Frost ex rel. Anderson v. Whitbeck, 2002 WI 129, 257 Wis. 2d 80, 654 N.W.2d 225, 229 (Wis. 2002).

The objection to a broad understanding of “relative” is that it could end up including people who are extremely distantly or tangentially related to the named insured: “What about your granddaughter’s husband’s mother’s brother’s wife’s father’s aunt?” Those who do take the term “relative” broadly, however, note that in the policy’s definition the only relatives in view are the ones who are a “resident of your household.” Most likely, your granddaughter’s husband’s mother’s brother’s wife’s father’s aunt is not going to be living with you—but in the unlikely event that he is, then (and only then) he might be included in the policy’s definition of a “relative.” Other courts, however, have preferred to draw a line somewhere, however arbitrary.

But even if “relative” is taken broadly so as to include all persons who are related by blood, adoption, or marriage, there are still limits. The death of a spouse is the end of a marriage and therefore the severing of a marital relationship, and so too is the divorce of a spouse. As we have seen in the discussion of the policy’s definition of “You” above, a former spouse is not a spouse. Even if he or she continues to reside in the named insured’s household, he or she is no longer a relative by the policy’s definition.

But the ending of a marital relationship may affect other relationships, as well. When a man and woman are married, the wife’s mother is the man’s mother-in-law. But if the wife dies or if there is a divorce, there is no longer a marital relationship between them. And in that case, the wife’s mother is no longer the man’s mother-in-law, though he may—out of habit or love—continue to call her “Mom.” If he marries a new wife, that woman’s parents will be his in-laws, not his former wife’s parents.

Here there is some disagreement between various courts and their rulings. In some cases, courts have ruled that, because death or divorce ends the marital relationship, it also ends all other relationships that exist because of the marital relationship—not only relationships with the former spouse’s parents (“in-laws”) or other relatives (e.g., nephews, nieces, aunts, uncles), but also relationships with a former spouse’s children.

Courts therefore sometimes view a stepchild whose natural parent has died or gone through a divorce as no longer a relative of a stepparent. A stepchild who is under the age of 21 and in the care of the named insured or another resident relative is an insured under the policy—if not because he’s a relative than because he’s a minor in the care of an insured—but questions arise in particular with regard to adult stepchildren. If a stepson lives with his mother and stepfather for years, continues living with his stepfather after his mother’s death, and then turns 22, in the view of some courts, he is no longer a relative of his stepfather and no longer a minor in his stepfather’s care and therefore is no longer an insured.

Other courts, however, have ruled that, in spite of the divorce or the death of the natural parent, a stepchild is still a relative of a stepparent.

Demaio v. State Farm Mutual Automobile Ins. Co

In the mid-1980s, some time after the divorce of Roger and Candace Younglove, Candace’s nephew, Dean Demaio, came to live with Roger. While he was living in Roger’s household, he was injured in an automobile accident that involved an uninsured motorist.

Roger had an uninsured motorist coverage insurance policy issued by State Farm, but State Farm refused to provide Dean with benefits under that policy because Dean was not Roger’s relative. He was Candace’s nephew, and while Candace and Roger were married, he was Roger’s nephew as well. But Roger and Candace’s divorce terminated their marital relationship and thereby also terminated Roger’s relationship to any and all of Candace’s blood relatives. He was no longer Dean’s uncle and Dean was no longer his nephew and therefore was not an insured under Roger’s policy.

The trial court agreed and, when Roger appealed, the court of appeals also agreed with State Farm and ruled in their favor: “Demaio’s sole ‘relationship’ to the insured existed by virtue of the insured’s marriage to Demaio’s aunt by blood. The dissolution of that marriage relationship not only dissolved Roger’s relationship to Candace as wife, but also Roger’s relationship by affinity to all of Candace’s blood relatives, including Demaio.”

See Demaio v. State Farm Mutual Automobile Ins. Co., 534 So.2d 1244 (Fla.Dist.Ct.App.1988).

Randolph v. Nationwide Mut. Ins. Co

In March 1994, Charles Haug and his adult stepchild died of carbon monoxide poisoning. Haug’s wife, who was the adoptive mother of the child, had died the year before. The stepchild’s estate filed suit against Haug’s estate, represented by Linda Randolph. Haug’s insurer, however, said it had no responsibility to provide coverage because the stepchild was not Haug’s relative and therefore was not insured under the policy.

Both the trial court and the appellate court agreed: The stepchild was Haug’s relative by virtue of his marriage to the stepchild’s mother, but that relationship ended when the child’s mother died. When Haug and his stepchild died, the courts said, they were not “relatives,” as the policy defined it.

See Randolph v. Nationwide Mut. Ins. Co., 170 Misc. 2d 364, 650 N.Y.S.2d 964, 965 (N.Y. 1996).

Remington v. Aetna Casualty and Surety Company

The case of Virginia and William Remington above involves a stepson whose biological father has died. It is also possible for a marriage to end through divorce.

In 1990, Virginia Remington’s stepson, William, was killed in an automobile accident. At the time, Remington had an automobile policy that provided underinsured motorist coverage for her and “any family member,” that is, anyone related to her “by blood, marriage or adoption,” who was a resident of her household. But her insurer said that her stepson, William, was not a relative by that definition, both because he wasn’t a resident of her household and because he was not related to her any longer. After all, he was related to her only by way of her marriage to his father, but his father had died in 1987. That death, said the insurer, ended Virginia Remington’s marriage and therefore also dissolved the relationship Virginia Remington had to her stepchild.

The trial court agreed with the insurer, but focused only on whether William was a resident in Remington’s household. Remington appealed the trial court’s judgment, and the appellate court examined both issues, concluding that there was some evidence that William could have been regarded as a resident—and therefore reversing the trial court’s decision—but also going on to consider whether William should be regarded as Remington’s relative.

The appellate court granted that the relationship between stepparent and stepchild is based on a marriage, but did not grant that the end of that marriage also ends the stepparent-stepchild relationship. The court pointed to a “scholarly and persuasive discussion” in 1950 by the Supreme Court of Washington that denied that “affinity was broken on the death of the spouse whose marriage created it.” When it comes to succession taxes, the court pointed out, divorce or death do not end step relationships, although in some other contexts they do.

In this context—underinsured motorist coverage—the court concluded that the death of a biological parent does not end the relationship between stepparent and stepchild. “Indeed, the death of a spouse and parent can strengthen the ties of affinity. Where the stepparent continues in the role of a parent to the child after the death of the biological parent, the nature of the actual connection between the two—the essence of affinity—has not changed. Neither should it be deemed to have changed in law.”

The court went to point out that if we say that the death of a biological parent ends the stepparent-stepchild relationship, then we end up with “absurd results.” Suppose the stepparent is the named insured on a policy and an accident happens that kills both the natural parent and the stepchild. If the stepchild dies first, a few seconds before the natural parent, then the death is covered. The stepchild is still a relative because the marriage hasn’t ended. But if the natural parent dies a few moments before the stepchild, that death ends the stepparent-stepchild relationship and the stepchild’s death isn’t covered. “We decline,” said the court, “to adopt an interpretation that could cause such arbitrary and inconsistent results.”

The court also rejected the insurer’s argument that the person in this case, who was 38 years old, was not a stepchild because only a minor can be a stepchild. Age has nothing to do with whether two people are related, the court said.

The appellate court, therefore, reversed the judgment of the trial court. One judge concurred, but disagreed with regard to a single point: The majority had grounded some of its argument on the ongoing interaction between Remington and her stepson. The judge said that all stepparent-stepchild relations should be regarded as continuing even after a death or divorce, with no need for “a subjective examination of the physical and emotional ties surrounding the stepparent-stepchild relationship.”

The court, he said, does not need to “engage in cumbersome, awkward, situational analysis…. A court should not be forced to decide how much contact, how much financial support, how many telephone calls, how many birthday cards, or how many conversations constitute the continuation of the stepparent-stepchild relationship…. It is time or our law to recognize that once a stepchild, always a stepchild, regardless of the state of the marriage creating the step relationship.”

See Remington v. Aetna Casualty and Surety Co., 35 Conn.App. 581, 646 A.2d 266 (1994).

Sjogren v. Metro. Prop. & Cas. Ins. Company

Dean Ramos was the son of Maurice Ramos from his first marriage. Later, Maurice married a second time, this time to a woman named Vida, so that Dean became Vida’s stepson. The three lived together for ten years and then divorced in the early 1990s, after which Vida married Donald Sjogren. Dean, however, did not stay with his biological father but instead continued living with his stepmother, Vida Sjogren.

In April 1993, while crossing a street, Dean was struck by a hit-and-run driver. The Sjogrens were the named insureds on an automobile policy. But the insurer denied their claim for uninsured motorist coverage because, the insurer said, Dean was not Vida’s relative “by blood, marriage or adoption,” and therefore wasn’t covered. After all, he was Vida’s ex-husband’s son, and the divorce that ended Vida’s marriage to Maurice Ramos also ended the stepparent-stepchild relationship that had resulted from that marriage.

The trial justice agreed with the insurer and rejected the Sjogren’s contention that Dean was still Vida’s stepson. The Sjogrens appealed, arguing that not only did Vida’s marriage to Maurice establish the stepparent-stepchild relationship, but Vida and Dean had also maintained a close relationship even after the divorce.

The appellate court recognized that “the law in this field is unsettled, and the authorities in other jurisdictions that have addressed this question are divided.” They noted the Demaio case, where the court declared that a divorce ended the relationship between uncle and nephew, although they pointed out that “in general, the cases that have held that steprelatives do not remain related in such circumstances involved situations in which being related would effect a penalty upon the individuals in question.”

They also noted the Remington case, where a stepson was regarded as still related to his stepmother even after his biological father’s death. They cited cases where it was said that when it comes to the end of a marriage, “the distinction between death and divorce … is a distinction without any compelling legal significance.”

In the end, the court chose to regard the term “relative” as inherently ambiguous: “The phrase ‘related by marriage’ has no settled, unequivocal definition that would preclude the continuing existence of step-relationships after the divorce or the death of the biological parent. And so, in light of that ambiguity, the court held that Dean was “related by marriage” to Vida and therefore reversed the trial court’s summary judgment.

See Sjogren v. Metro. Prop. & Cas. Ins. Co., 703 A.2d 608, 612 (R.I.1997).

No matter how broadly the definition of “relative” has been taken in the courts, there are limits. A distant blood relative may be taken as a relative, and so, in some cases, may someone who was a relative by marriage even though the marriage has come to an end. But however elastic and stretchable the term “relative” may be, it does not include anyone and everyone. Some policies may be worded in such a way that they include foster children as relatives, but the HO-3 does not. That doesn’t mean a foster child is not an insured, however. If a foster child is under 21 and in the care of the named insured or another resident relative, he or she is an insured under the policy. Friends are not relatives, no matter how close they are or how long they have lived together or whether they are romantically involved with each other.

Eisner v. Aetna Cas. and Sur. Company

For twenty years, Stuart Eisner and Michael Gonzales lived together. In the late 1980s, they were each sued by their landlord. Eisner argued that his insurance policy should cover Gonzales, described as “his lifelong friend and companion,” too. The court, however, disagreed. Gonzales was not Eisner’s relative by blood or marriage, nor was he under 21 and in Eisner’s care. Moreover, Eisner could have had Gonzales added to the policy as a named insured, but had not done so.

See Eisner v. Aetna Cas. and Sur. Co., 141 Misc. 2d 744, 534 N.Y.S.2d 339, 340 (N.Y. 1988).

A girlfriend or boyfriend, even if they live with the named insured, is not a relative. Engagement does not make them relatives; only marriage would do that. And therefore the children of a friend, a girlfriend or boyfriend, fiancé or fiancée, are not relatives of the named insured by the policy’s definitions.

There are some complications that result from a situation in which there is a live-in boyfriend or girlfriend. A live-in boyfriend is not a spouse, not a relative, and therefore not an insured under the policy. So if, for instance, he slips and falls on the front steps, he is able to sue his girlfriend who owns the house and who is insured and receive money from her insurer. A husband could not do so, nor could a child or any other relative living in the house, but a live-in boyfriend can. In fact, a couple who are living together but are not married can collude—that is, work together to get insurance money by fraud—in a way that the policy is specifically designed to prevent married couples or any other resident relatives from doing.

Key Takeaway: The homeowner’s policy includes relatives who are resident in the named insured’s household as “insureds.” The relationship may be by blood, through marriage, or via adoption. Relationships through marriage, however, end with the end of the marriage. Courts also sometimes do not regard distant relations as “relatives” for the purpose of the policy.

Eisenhardt v. Snook

On July 1, 2005, Dorles Snook and her live-in boyfriend, Don Eisenhardt, did chores at Snook’s house in Bossier Parish, Louisiana. Eisenhardt went to take a shower and Snook took the trash out. The garbage back broke open, spilling trash onto the front steps. Snook picked up the trash and then sprayed down the steps to clean them off. Eisenhardt finished his shower and left the house by the front door, slipped on the wet steps, and fell, injuring his right hand and lower back. He then sued Snook and her insurer, State Farm.

The trial involved questions about whether Snook was liable or whether Eisenhardt himself was entirely responsible for the accident. The trial court decided Snook wasn’t liable, but the court of appeals decided that “Snook was 30% at fault and Eisenhardt 70% at fault.”

But was Eisenhardt, as Snook’s live-in boyfriend, in the same position as a guest or someone she invited onto the property? State Farm and Snook argued that he wasn’t. Rather he was the “man of the house,” even though he wasn’t married to Snook, and therefore not in a position to receive damages from her or her insurer. The term “relative” wasn’t used, but the implication of their argument was that he was an insured under Snook’s policy.

The court recognized that, according to Louisiana law’s inter-spousal immunity statute, spouses may not sue each other for accidents such as this one. But, the court said, “clearly this is not applicable.” Eisenhardt was not Snook’s spouse. And State Farm did not word its policy in such a way as to exclude coverage if an insured is sued by a “live-in significant other.”

See Eisenhardt v. Snook, 986 So. 2d 700, 706 (La.App. 2 Cir. 2008).

Residents of the Named Insured’s Household

The HO-3 policy defines an “insured” as “you and residents of your household who are your relatives or other persons under the age of 21 and in your care or the care of a resident of your household who is your relative.” Not all residents of a named insured’s household are themselves insured. As we have seen above, a lifelong friend and companion is not a relative, even if he has lived with the named insured for decades. A live-in boyfriend or girlfriend is not a relative, no matter how long they have lived together. The ending of a marriage through death or divorce may end other relationships as well, so that, for instance, a former in-law is no longer a relative. But it is also the case that not all relatives of a named insured are residents. The only relatives who are insured under the policy are relatives who are residents of the household of the named insured. Even the named insured’s spouse is insured only if he or she is either (a) named on the Declarations page of the policy or (b) a resident of the named insured’s household. (For more on resident spouses, see the discussion of “You” above.) It might seem fairly easy to determine if a person is a resident or not: “Did he live there or didn’t he?” But in fact, people’s living situations sometimes do raise questions about whether they should be considered residents and courts often have to weigh various factors—and when that happens, courts sometimes come to very different conclusions. In some court rulings, one factor is primary in determining whether a person is a resident. In other court rulings, the court attempts to look at a number of factors, with no one factor seen as most important, in order to get a sense of the relationship as a whole.

While courts may consider other factors, such as the self-sufficiency of a particular relative or even his or her age, the primary considerations in determining if a relative is a resident of a named insured’s household are usually (1) whether the relative lives under the same roof as the named insured; (2) whether the relative’s stay is not temporary but is of sufficient length that it would be reasonable for the relative and the named insured to take it into consideration with regard to their insurance policies; and (3) whether the relationship is close, intimate, and informal rather than “at arm’s length,” that is, whether the relative and the named insured function together as a family as opposed to having, say, a strictly landlord-tenant relationship, where there is a formal agreement such as a lease agreement and one pays rent to the other. No one of these factors, however, is absolutely decisive in determining if a person is a resident of someone’s household.

Key Takeaway: For a relative to be an insured under the homeowner’s policy, the relative must be a resident in the named insured’s household. Courts take into consideration whether the relative lives under the same roof as the named insured, whether the relative’s stay is brief and temporary or long enough that the named insured should have taken it into account when thinking about an insurance policy, and whether the relative merely lives in the same building or has a close, intimate, informal relationship with the named insured. No one factor, however, is absolutely decisive.

State Farm Fire & Cas. Company

When Steven Short graduated from high school, he moved out of his parents’ home. But in October 1983, he moved back in with his parents. On September 15, 1985, he and his friend, George Keller, were at a bar. Keller tried to stand on Short’s shoulders but fell and was injured. Keller and Short agreed on a settlement and Keller expected Steven’s parents’ insurer, State Farm, to provide coverage from their homeowner’s policy and their personal liability umbrella policy.

State Farm, however, raised the question whether Short was a resident of his parents’ household. The trial court ruled that he was, and State Farm appealed. The court of appeals noted that Short did spend a lot of time at his girlfriend’s apartment, but that he did not live there. He didn’t have a key to her apartment. He slept at his parents’ house, kept his belongings there, used their address as his permanent address for his driver’s license and registration, and did not pay rent. Only in October 1985, after the incident with Keller, did Short move out of his parents’ house.

Short’s father testified that when he renewed his insurance policies, the question of where Steven was staying “never arose.” State Farm pointed to that as an indication that the father did not consider his son as a resident with regard to his insurance policies. The court, however, did not see the father’s testimony as sufficient evidence that Short was not a resident. Therefore, the court of appeals agreed with the trial court that Short was indeed a resident in his parents’ household and was an insured under their policy.

See State Farm Fire & Cas. Co. v. Short, Court of Appeals of Minnesota. December 5, 1989 448 N.W.2d 560.

Location

Perhaps the first thing we think of in connection with the word “residence” is location. Although courts do state that whether one is a resident of someone’s household has more to do with one’s relationship to a person or group of persons—the “household”—and not to a building, it is still common for courts to examine whether a relative lives “under the same roof” as the named insured. Even if the relative lives in the same building and under the same roof as the named insured, however, questions still arise. It is possible for relatives to have a separate living area in the same house. A son, for instance, might live in an apartment above the garage. Or a niece might rent a room in her uncle’s house, raising the question whether she is a resident in his household or a tenant—or whether that distinction matters, as far as the insurance policy is concerned. Often, courts have to evaluate such situations, and courts sometimes come to very different conclusions.

Denn v. Vanguard Ins. Co.

On May 14, 1987, a fire damaged the two-story building that belonged to Mary Denn and in which she lived, together with her daughter, Violet McDermott, and McDermott’s two daughters.

The insurer argued that Violet McDermott and her daughters were not insured under the policy because, though they were relatives and lived in the same building, they were not residents of Mary Denn’s household. The building was built as a two-family residence, with two apartments, each with its own kitchen, bathroom, doorbell, and electric meter. In addition, McDermott paid Mary Denn rent. Therefore, said the insurer, even though she was a relative, she was a tenant with her own distinct household in that building.The court, however, was not persuaded by the insurer’s arguments. That McDermott paid rent is irrelevant: The definition of “insured,” the court pointed out, “does not distinguish between members of the household on the basis of whether they do or do not pay rent.” Denn and the McDermotts shared meals, living space, the telephone, and the household expenses—in short, living together as one household.

The insurer had insisted that because it was a two-family building, designed with two apartments, it could not contain one household. The court rejected this argument: “Under this argument, even a ‘traditional’ family consisting of two parents and their children occupying the entire building would not be one household. If the children occupied the bedrooms in the second apartment upstairs, according to defendant [the insurer], they would be a separate second household uninsured by this policy. This is an untenable and indeed frivolous interpretation of the language of the policy.”

The court concluded that McDermott and her daughters were indeed relatives resident in Denn’s household and therefore insureds under the policy’s definition.

See Denn v. Vanguard Ins. Co., 707 F. Supp. 104, 105 (E.D.N.Y. 1989).

General Assur. Co. v. Schmitt

On August 18, 1995, Brian Mohr allegedly fell on the front stoop of the two-family home owned by his grandmother, Louise Schmitt and was injured. Schmitt’s insurer, General Assurance, argued that it was not obligated to provide coverage for her claims for damages due to Mohr’s bodily injury. Mohr was a relative and a resident of her household, living in her home.

Eventually, the case came before the Supreme Court of New York’s Appellate Division. The court noted that, while Mohr and Schmitt did live in the same building, Mohr lived in the upstairs apartment with his mother. The apartments shared a heating system and a mailbox, but had separate utility connections, and each had its own kitchen and bathroom. Mohr’s mother paid rent to Schmitt and paid her own bills for gas and electricity. Schmitt occasionally visited her daughter upstairs, and Mohr occasionally ate with Schmitt, but they each had their own distinct apartments, with locking doors. They did not go into each other’s living space any time they pleased. In addition, said the court, Schmitt would not have viewed Mohr as a member of her household.

Therefore, the court ruled, Schmitt was entitled to coverage under her policy in the personal injury suit her grandson brought against her. But, the court added, since the policy also excluded coverage for medical expenses for anyone residing in any part of the insured location—and Mohr did—Mohr was not entitled to receive reimbursement for his medical expenses under Schmitt’s policy.

See General Assur. Co. v. Schmitt, Supreme Court, Appellate Division, Second Department, New York. October 4, 1999 265 A.D.2d 299696 N.Y.S.2d 721999 N.Y. Slip Op. 08172.

Liberty Mut. Ins. Co. v. Havner

Another situation that raises questions involves a relative who is living on the insured property but in a separate building. Is that relative then a resident of the named insured’s household? Courts generally have not seen it that way.

In December 1998, Nicholas Bellefeuille and Matthew Lilly—both of them minors—were playing at Matthew’s home. They had .22 rifles, and Matthew, mistakenly thinking his was unloaded, pointed it at Nicholas and pulled the trigger. The bullet struck Nicholas in the abdomen.

Matthew’s home, where he lived with his parents, was on a ten-acre piece of property owned by his grandparents, the Havners. The Havners lived in one house and the Lillys in another, twenty feet away but sharing the same utility lines. The houses had different phone numbers, but both numbers were in Mr. Havner’s name. There was a single mailing address. The Havners did not charge rent to the Lillys nor did the Lillys pay their utility bills. The Havners frequently babysat Matthew and he sometimes stayed overnight with them. The Lillys and Havners frequently ate together; Mr. Havner said they did so for one meal every day.

Matthew’s mother, Donnie Lilly, who is the Havners’ daughter, had a job and was not dependent on the Havners, nor were the Havners in charge of Matthew’s upbringing in any way.

The Havners’ insurer argued that Matthew was not a resident of Mr. Havner’s household and that his homeowner’s policy did not cover his liability for this shooting accident. The trial court found in favor of coverage, but the insurer appealed. “The pivotal issue in this case,” said the court of appeals, “is whether a relative living rent-free on the insureds’ real-estate in a home twenty feet away from the insureds’ home is covered as a relative who resides in the insureds’ household.” The court recognizes the challenges associated with trying to define terms such as “resident” and “household,” as well as “curtilege,” a term that often appears in legal definitions of a household (“under one roof or within a single curtilege”) and refers—somewhat unclearly—to the area around a house, including its outbuildings, which a family uses or in which a family can be said to live. Matthew’s house, the court pointed out, was close to the Havners’, but it wasn’t in the same enclosure and it wasn’t a building that the Havners themselves used for their own activities. They were two distinct houses, however close they were.

The court of appeals concluded that “because Matthew did not live in the same house as the Havners or within the curtilage of their home, he was not a resident of their household and, hence, was not covered by their homeowner’s policy.”

See Liberty Mut. Ins. Co. v. Havner, 103 S.W.3d 829, 832 (Mo.App.W.D. 2003).

Row v. United Services Auto. Ass’n

Some courts, however, pointing out that living under one roof or in one curtilage (the area around a house) is only one factor in determining if someone is a resident of a household, have seen the phrase “resident of your household” as ambiguous. Looking at other factors, such as whether the relative is independent and self-sufficient or is dependent upon the named insured, some courts have ruled that even though a relative lives in a separate dwelling place, he or she is still a resident in the named insured’s household.

On March 20, 1983, Mark Row was killed in a hit-and-run accident. His father’s automobile policy would provide uninsured motorist coverage for a relative who was a resident of the father’s household but, said the insurer, Mark was not. His father owned an apartment complex, consisting of twelve one-bedroom apartments. Mr. Row lived in one, and Mark had lived there for a time with him. Now Mark lived in another of the apartments, a separate residence. And the trial court agreed.

The court of appeal, however, drew a different conclusion. It pointed to a number of cases in which a relative was not currently living under the same roof as the named insured and yet was considered a resident of his or her household. Granted, those cases involved someone who was temporarily absent and planning to return, but the court saw them as support for an interpretation of the phrase “resident of your household” that did not absolutely require “physical residence in a single structure.” Mark had ongoing mental problems, had been in and out of various institutions, and in 1981 had been committed to his father’s care. He would have lived with his father, but during one of his absences, two of his brothers had come to live with Mr. Row, and so Mark moved into a vacant apartment in the complex. One of his sisters lived in another apartment, and the family treated the apartment complex as if it was their home. They had a master key that worked for each of their apartments and came and went from each other’s apartments as they wished. Neither Mark nor his sister paid rent, nor was there a lease. Mark had no utilities in his apartment, and cooked and ate, bathed and did laundry, and so on, at his father’s apartment.

“The fact that Mark did not physically reside within the same apartment as his father,” said the majority of judges in the court of appeal, “does not preclude his being a resident of his father’s household. The record contains no evidence to support a conclusion that Mark either intended to maintain or was financially and emotionally capable of maintaining his own household separate and apart from that of his father.” With one judge dissenting, the court concluded that Mark Row was an insured under his father’s policy.

See Row v. United Services Auto. Ass’n, District Court of Appeal of Florida, First District. August 7, 1985 474 So.2d 34810 Fla. L. Weekly 1871.

Farmers Mut. Ins. Co. v. Tucker

In 1996, Hubert Junior Tucker wanted to buy a pig from Locie Taylor’s farm. There were two mobile homes on that farm, both owned by Locie, and they were between fifty and a hundred yards apart. Locie lived in one and his son, Darrell Lee Taylor, lived in the other. When Hubert Tucker arrived, he saw smoke coming from Darrell Lee’s mobile home. He banged on the door but there was no response and so Tucker kicked in the door in order to rescue Darrell Lee. Inside, Darrell Lee, who was an alcoholic, had been rendering lard or cooking sausage in a skillet on the stove but had passed out. He awoke, saw the smoke, grabbed the skillet, and went to throw the skillet out the front door—just as Tucker kicked it in. The grease burned Tucker badly. He sued Darrell Lee as well as Locie for negligence.

Locie’s property insurance company, Farmers Mutual, said that Darrell Lee was not an insured under the policy, because, though a relative, he was not a resident in his father’s household. They lived in two separate mobile homes, after all. The circuit court granted a summary judgment in Farmers Mutual’s favor. When Tucker appealed, however, the court of appeals reconsidered the matter. Tucker argued that the term “household” is ambiguous and can be taken broadly enough to include a family member living on his father’s property in a trailer owned by his father. Farmers Mutual, however, maintained that “household” is not ambiguous, that it refers to persons who live together under the same roof, and that Locie and Darrell Lee did not.

The supreme court of appeals reviewed several cases, noting the factors that the various courts examined to determine if someone was a “resident of a household,” and concluded that that “phrase means a person who dwells—though not necessarily under a common roof—with other individuals who are named insureds in a manner and for a sufficient length of time so that they could be considered to be a family living together.” In this case, the court said, Darrell Lee didn’t pay rent and did not have a lease on the mobile home he lived in. He had no job, besides helping his father on the farm. His father paid most of his expenses, including even his food. And therefore, said the court, “a jury could reasonably conclude that Darrell Lee was a ‘resident’ of Locie’s ‘household.’” The court reversed the circuit court’s summary judgment in favor of Farmers Mutual and sent the case back for another trial.

Three judges, however, dissented from the majority’s ruling. One judge noted that the court had always—and particularly in an earlier and significant case—taken “household” to be unambiguous and to mean “a family living together under the same roof.” Why the change? “I simply fail to understand how a term can go from being clear and unambiguous to being so ‘elastic’ that it is practically devoid of meaning within the space of five years.” The majority’s opinion, he said, would mean that any relatives living anywhere on an insured’s property could be considered residents of his household.

Another dissenting judge pointed out that in every case the majority cited, one of the parties being sued “claimed to be a member of a household in order to obtain coverage under a policy.” But there was no evidence that either Locie or Darrell Lee considered Darrell Lee to be a member of Locie’s household. Just the opposite, in fact.

Furthermore, the majority set out some factors to consider in weighing whether Darrell Lee was a resident of Locie’s household including whether the person had another place of lodging (and Darrell Lee did lodge in a different place from his father, namely, the second trailer), and “the age and self-sufficiency of that person” (and Darrell Lee was 35 years old and living on his own).

Another judge, agreeing with the majority and responding to the dissenting judge, argued that, in spite of his age, Darrell Lee was not self-sufficient, but depended upon his father to provide for him—including his place of lodging. He had nowhere else to go besides his father’s farm and, except for a brief period of marriage, had lived there all his life.

See Farmers Mut. Ins. Co. v. Tucker, Supreme Court of Appeals of West Virginia. December 4, 2002 213 W.Va. 16576 S.E.2d 261.

Duration

Not all cases can be resolved by pointing to where a person sleeps, eats, and keeps his belongings or what address that person uses on his driver’s license. One of the prominent factors that courts also consider is the duration of a person’s stay at a particular residence. A visitor, even if he or she visits frequently, is not a resident; a houseguest is not a member of one’s household.

Dautel v. United Pacific Ins. Companies

In the fall of 1982, Jay King took a vacation from work and came to visit his sister, Donna Kester, in Washington to go deer hunting with her and her boyfriend, Larry Dautel. King lived in Arizona and planned to stay in Washington for a week to ten days before returning home. While he was at Kester’s house, King slept on a living room sofa bed.

After the hunting trip, when they were back at Kester’s house, Kester and Dautel got into an argument. At some point, Dautel slapped Kester, and King then picked up a hunting rifle and pointed it at Dautel. Dautel tried to take the rifle away from King, the firearm went off, and Dautel was shot in the abdomen. Dautel and his wife, Irene, sued King, who admitted his negligence. King’s homeowner’s insurer, State Farm, paid up to the limits on his policy. The Dautels expected Kester’s homeowner’s insurer, United Pacific, to pay more of the damages, but United Pacific did not. The Dautels then sued United Pacific. The trial court granted a summary judgment in favor of the Dautels.

When United Pacific appealed, the court of appeals examined the question of whether King was insured under Kester’s homeowner’s policy. He was certainly Kester’s relative, but was he a resident of her household? The Dautels asserted that the phrase “resident of your household” is ambiguous and therefore should be interpreted in a way that provides coverage for King’s liability for Dautel’s injury.

The court, however, did not view the phrase as ambiguous. “Although King at the time of the incident was living under Kester’s roof in a close, intimate and informal relationship with her”—phrases that are often used by courts to describe a resident of a household—“King did maintain another lodging in Arizona, to which he intended to return after his stay of a week or 10 days. The duration of his visit was temporary instead of permanent.” This was King’s vacation, after all, and neither Kester nor King thought of having King included in Kester’s insurance coverage because King came to visit his sister.

The court of appeals therefore reversed the decision of the trial court. King, the court concluded, was a relative but not a resident of Kester’s household and Kester’s insurer was not obligated to cover King’s liability.

See Dautel v. United Pacific Ins. Companies, 48 Wash. App. 759, 740 P.2d 894, 896 (Wash.App. Div. 1 1987).

A brief visit by a relative does not make that relative a resident of one’s household. But it is also possible for a relative to come to stay, not just for a vacation or for a set period of time but for an indefinite time. Relatives move in with other relatives, for instance, while they are looking for work or when they have sold their home but have not yet purchased another. In such a case, is a relative who is temporarily but indefinitely living in one’s home a resident of one’s household? While courts sometimes differ in their rulings, the fact that the relative intends to move out often inclines courts to rule that the relative is not a resident and therefore not an insured under the homeowner’s policy.

Fiore v. Excelsior Ins

In late 1993, Robert G. Roth and his wife sold their home in Florida to move to New York. Roth’s sister and husband, the Fiores, invited the Roths to stay with them in their home in Cottekill until the Roths had employment and were able to move into their own home. The Roths had a bed in the Fiores’ dining room and stored some of their belongings at the Fiores’ house and some with other relatives. They used the Fiores’ address for some purposes, but they received their mail at a post office box. By January 1994, the Roths had part-time employment and began to look for a house.

On January 22, Robert Roth was clearing snow from the Fiores’ roof and fell from a ladder. The Fiores’ insurer said that Roth was a relative, living in the Fiores’ household, and therefore was an insured under the policy, and the policy did not provide coverage for bodily injury to an insured.

The Supreme Court of New York ruled that the Roths’ stay at the Fiores’ home was “only temporary.” They had not intended it to be their permanent residence and were seeking a house of their own. As a matter of fact, due to Robert Roth’s injuries, they stayed with the Fiores much longer than they would have otherwise, but that prolonged stay after the accident was irrelevant. At the time of the accident, even though they were staying at the Fiores’ home indefinitely, they were still there temporarily. Since the Roths were not residents, then, Robert Roth was not an insured and the policy’s exclusion of coverage for an insured’s bodily injury did not apply to him.

See Fiore v. Excelsior Ins., 276 A.D.2d 895, 714 N.Y.S.2d 149, 150 (N.Y.App.Div. 3 Dep’t 2000).

Household

A third prominent factor that courts often consider in determining if a relative is a resident of a named insured’s household has to do with the meaning of the word “household” and the nature of the relationship between the relative and the named insured. Is the relationship close, intimate, and informal rather than “at arm’s length”? That is, do the relative and the named insured function together as a family or do they keep their distance from one another, perhaps living in the same building but as two very distinct units? Does the relative have a lease agreement and pay rent, so that theirs is more of a landlord-tenant relationship, or does that matter so long as it is a relative who is living in the named insured’s home?

Courts frequently note that the policy speaks of a resident of a household, not of a particular house. For instance, in the case of Jones v. Crane described below, the court said, “The correct inquiry for determining whether a person is a resident of a particular household with respect to insurance coverage is to determine the individual’s attachment to a group or to a person, rather than to a building.” And this attachment has to do with a person’s intention, behavior, circumstances, way of speaking about the relationship, and so on. In some cases, then, even when the situation clearly involves relatives living in the same residence as the named insured, courts have found it difficult to determine if they should be considered members of the same household.

Key Takeaway: When the homeowner’s policy speaks of a resident of a “household,” it is not speaking specifically of an individual’s relationship to a particular building. It is speaking of the individual’s relationship to a person or group, in this case, the named insured and those who make up his or her household.

Fireman’s Fund of New Jersey v. Caldwell

Bertha Caldwell owned a two-family building in Paterson, New Jersey. She lived in the first floor apartment and a tenant lived in the second floor apartment. At a certain point, her sister, Georgia Caviness, moved in with her because her doctor had advised her that it would be best for her not to live alone. She insisted in court that her sister did not provide care for her because she was not sick. She paid rent and occupied one of the first floor bedrooms, and the sisters shared the bathroom and kitchen.

On February 23, 1990, Caviness was allegedly injured in a fall at Caldwell’s house. Eventually, she sued. Caldwell’s insurer maintained that Caviness was a relative who was a resident of Caldwell’s household. After all, they were sisters living together. And therefore she was an insured under the policy, and the policy excluded coverage for bodily injury to an insured.

Caviness, however, argued that the fact that the economic relationship—the fact that she paid rent—meant that she and Caldwell were not functioning as sisters but as landlord and tenant. Caldwell’s policy had an endorsement entitled “Additional Residence Rented to Others,” which Caviness argued applied not only to the tenant in the second floor apartment but also to her.

The court was asked to grant a summary judgment in favor of the insurer, but it did not do so. It considered a number of older cases in which relatives who lived together were not viewed as residents of the same household. “The mere residence of a relative in the home of an insured, as a matter of law, does not constitute the relative a member of the insured’s household. It must be demonstrated that the parties established a familial relationship and enjoyed at least some significant prerogatives of family life including the sharing of companionship and some degree of joint domesticity.”

In the case of Caldwell and Caviness, the court said, too little was known of their relationship for the court to determine if they were one household or not. “For example, the court is left to speculate whether they purchased food and household goods jointly or separately, allocated homemaking and housekeeping responsibilities and dined together or independently. Also unanswered is whether their living arrangements were temporary or permanent, the rent charged was at fair market value, and what additional arrangements may have been made respecting utilities. Unresolved at this point is whether arrangements were purely economic or broader, encompassing shared companionship as well as living facilities.” And so the court denied the insurer’s request for a summary judgment.

See Fireman’s Fund of New Jersey v. Caldwell, 270 N.J. Super. 157, 636 A.2d 606, 608 (N.J.Super. Law Div. 1993).

In seeking to determine if a relative is a resident of the named insured’s household, courts often consider the intent of both the named insured and the relative staying at the named insured’s house—and not only whether the parties intend the stay to be temporary or long-term, but also whether the parties intend to live together as a household, as a unified group, pursuing mutual happiness and well-being. It is possible for relatives to agree to live together for a while, while maintaining two separate households.

Jones v. Crane Co.

Vickie Jones married George Jones’s son in April 1989. For four months, they lived with other relatives in her grandmother’s house. They moved briefly to their own apartment, then to a friend’s apartment, and then, on November 7, to George Jones’s house. On November 29, Vickie went to stay with her aunt to help her family for a while. On December 12, she came back to George Jones’s house. That night, the central heating leaked carbon monoxide and allegedly poisoned her while she slept. The next day, she gave birth prematurely and her newborn son had birth defects, allegedly resulting from the carbon monoxide poisoning. While her son was in the hospital for several weeks, Vickie Jones moved back to stay with her aunt again.

Vickie Jones sued George Jones and his insurer. His insurer, however, requested the court to grant summary judgment, judgment without trial, because the insurance policy did not cover injury to resident relatives and Vickie Jones was a relative and was a resident in George Jones’s household. The trial court granted that judgment, but Vickie Jones appealed.

There was no question about whether Vickie Jones was a relative of George Jones. But the court of appeals saw that there was a question about whether she was a “resident of the named insured’s household” at the time of the alleged carbon monoxide poisoning. The court pointed to common definitions and descriptions of a “household,” including such phrases as “a group of people living together as a family,” “dwelling as a family under one head,” and “subsisting in common and directing their attention to a common object, the promotion of their mutual interests and social happiness.”

“The correct inquiry for determining whether a person is a resident of a particular household with respect to insurance coverage,” the court said, “is to determine the individual’s attachment to a group or to a person, rather than to a building.” And that, the court went on, has to do with the person’s intention, as indicated by the person’s behavior, the circumstances of the person’s life, and by the way the person expresses himself or herself “at times not suspicious” (e.g., in casual conversation, as opposed to being asked about it in court, where the person might deliberately misrepresent his or her intentions).

In this case, the court said, the evidence indicates that Vickie Jones and her husband intended their stay in George Jones’s home to be temporary. They were there only because her husband was unemployed, they didn’t have much money, and they had nowhere else to live. They had arranged to pay some rent. Vickie Jones stated that she hated being there, and both she and her husband said that they would move away if they could.

The court concluded that Vickie Jones was not living in George Jones’s house “as a family under one head,” and that she and George Jones “did not subsist in common and direct their attention to a common object, the promotion of their mutual interests and social happiness.” Their only goal was to be there temporarily, till they could become financially secure enough to move elsewhere. Therefore, the court of appeals said, the trial court was wrong to grant summary judgment in favor of the insurer. Vickie Jones was not a resident in George Jones’s household at the time of the incident.

See Jones v. Crane Co., 653 So. 2d 822, 825 (La.App. 2 Cir. 1995).

In the situations described above, a relative moves into the named insured’s home. In other cases, a relative may be resident of the named insured’s household and then the named insured moves out. Now, the relative is still living in the named insured’s house but the named insured is not. Are they still one household? Is the relative a resident in the named insured’s household and therefore an insured under the policy? Courts have differed in their rulings as they evaluate various cases.

Erie Ins. Exchange v. Stephenson

In 1987, Daryl Stephenson moved out of his parents’ home and into his grandmother’s home, while his grandmother moved into his parents’ home so that his mother could look after her. Stephenson did not pay rent, though he did pay the utility bills. His grandmother maintained her homeowner’s insurance on her house, even though she was no longer living there.

On July 4, 1990, Stephenson—now 23 years old—had some friends over. They were playing with bottle rockets, and one friend was injured. Four years later, she sued and Stephenson informed his grandmother’s insurer. The insurer said that Stephenson was not part of his grandmother’s household and therefore wasn’t insured under her policy, since she didn’t live with him in that house. The circuit court disagreed and the insurer appealed.

The court of appeals upheld the circuit court’s decision. “There is no requirement that members of a household live under the same roof,” the court said. The insurer could have defined “household” more precisely, but did not. Stephenson was related to his grandmother and lived in her house. “Grandmother and Stephenson, functioning as members of the same family, traded places: Grandmother moved out of her house for health reasons and Stephenson moved in. Under these circumstances, we conclude that Stephenson was a member of Grandmother’s household.” Therefore, the court concluded, Stephenson was covered by his grandmother’s policy.

See Erie Ins. Exchange v. Stephenson, 674 N.E.2d 607, 610 (Ind.App. 1996).

In other cases where the named insured has moved out and a relative has continued to live in the named insured’s home, however, courts have ruled that such a relative is no longer a resident in the named insured’s household.

Nicotera v. Allstate Ins. Co.

Virginia Eannace owned a two-family home and then transferred ownership to a family trust. She lived there until 2010 and then moved to a nursing home, and she continued to be the only named insured on the policy. Her niece Gioia lived on the first floor and there were tenants living in the second floor apartment. On August 8, 2012, there was a fire that damaged the building. The insurer said that there was no coverage for the damage because the named insured did not live in the building. Her family, however, protested that Gioia ought to be regarded as an insured under the policy because she was a resident living in her grandmother’s household.

The trial court agreed with the insurer and, when the family appealed, the court of appeals did too. Gioia was Eannace’s niece and was residing at the property at the time of the fire, but she wasn’t a member of Eannace’s household because Eannace was not living at the property herself but rather was in a nursing home.

See Nicotera v. Allstate Ins. Co., 147 A.D.3d 1474, 47 N.Y.S.3d 830, 832 (N.Y.A.D. 4 Dept., 2017).

In some cases, courts have ruled that a relative who is not living with the named insured is still a resident of the named insured’s household because his absence is only temporary. Such a relative may be living elsewhere for a time, but the court takes into account his intention to return to the named insured’s home, which both he and the named insured regard as his home.

Long v. Coates

Except for a brief six months of college, Steven Coates with his mother at her house in Richmond, New York, until mid-1984 when he went to Navy boot camp. He left all of his possessions at her house, which he and she regarded as his residence. On September 15, on his first leave from the Navy, Coates drank heavily, drove erratically, and collided with another vehicle. An off-duty police officer, Mike Long, saw the collision and approached Coates’s car. Coates got out and came toward Long, who identified himself as a police officer and tried to get Coates to return to the scene of the accident. When the lights from the emergency vehicles came into sight, Coates said something that Long didn’t understand. But what he said and the way he looked made Long fear for his safety. He started back toward his vehicle, and Coates stabbed him twice in the back. Coates’ mother had a homeowner’s policy with State Farm, but State Farm did not regard Coates as an insured under the policy because he was in the Navy and not a resident of his mother’s household. The trial court disagreed and granted summary judgment in favor of coverage for Coates. State Farm appealed, but the court of appeal noted that courts in the past have viewed “children in military service who have not acquired a separate household” as residents of their parents’ household. State Farm argued that because Coates had stated his intention to make the Navy his career he was not intending to return to his mother’s household. The court disagreed. “Mr. Coates was between duty stations; he had no residence other than his mother’s.” And so the court concluded Coates was, in fact, a resident in his mother’s household and therefore an insured under her policy.

See Long v. Coates, 60 Wash. App. 710, 806 P.2d 1256, 1258 (Wash.App. Div. 3 1990).

Even if he doesn’t intend to move back to his parents’ home, a person in the military may still be regarded by the courts as a resident of his parents’ household. Courts have sometimes ruled that a person in a branch of the military has two residences, the one fixed address he regards as his home and the address that changes as he moves wherever the military sends him.

Prudential Prop. & Cas. Ins. Co. v. Koby

On December 28, 1994, Edgar Koby was visiting his parents at their home in Ohio when, in the course of target shooting, he accidentally shot and injured Thomas Butcher. Koby was in his 30s, a captain in the US Army, who was stationed at Fort Hood in Killeen, Texas. Koby expected his parents’ insurer to defend him and cover any damages under their homeowner’s policy, but the insurer insisted that Koby was not insured under their policy. He was not a resident of their household, since he had his own household in Texas and, as a career officer, was not planning to return to live with his parents. The trial court noted that Koby considered his parents’ home to be his residence, had an Ohio driver’s license, paid taxes in Ohio, voted in Ohio, and used his parents’ address as his permanent residence address. The insurer, however, appealed. The court of appeals noted that the policy itself did not define the term “resident,” and dictionaries provided no satisfactory or exact definition. The court noted that Koby was 32 years old “and, ostensibly, separated from the parental ‘nest’ some time ago.” He was self-supporting, had an apartment of his own, off the military base, and returned to his parent’s home only for visits. He indicated that he was indeed a career officer and planned to be in the military until his retirement, after which he intended to return to Ohio. For now, however, he planned to stay in Texas for the foreseeable future. The court also noted, though, that Koby wasn’t married: “In our view, Koby’s single status strengthens his ties to his parents’ household.” Most of what they reviewed suggested that Koby did indeed have a residence in Texas. But they also cited cases that stated that an individual could have more than one residence. Koby had a connection to Texas through the military, but he also had a connection to his parents’ household—and so the court ruled, in the end, that he had sufficient ties to their household to be considered a resident of it for the sake of insurance coverage, even though he lived in Texas and was only visiting them.

The court therefore upheld the trial court’s decision that Koby’s parents’ insurer did have the obligation under their homeowner’s policy to defend Koby and cover any damages that were awarded as a result of the accidental shooting.

See Prudential Prop. & Cas. Ins. Co. v. Koby, 124 Ohio App. 3d 174, 705 N.E.2d 748, 749 (Ohio App. 11 Dist. Trumbull 1997).

Separation and divorce complicate the interpretation of the phrase “resident of your household” as well because children often end up spending significant time in the homes of both parents, whether the parents have set up their own schedule or the court has awarded them shared custody (with almost equal time with each parent) or joint custody (where the children live with one parent but visit regularly in the home of the other).

State Farm Fire and Cas. Co. v. White

John and Lizanne White were married in 1988. They moved into a home in Eads, Tennessee, in 1991 and had a son, Austin, in 1992. In 1996, they. Lizanne moved to an apartment, while John remained in the home in Eads. Austin lived with his mother, but his parents agreed that Austin would stay with his father on Wednesdays, every other weekend, and some other Saturdays. This was the Whites’ own arrangement; there was no court ordered custody agreement at this time.

On October 5, 1996, John White was cutting grass on his riding lawnmower. Austin ran up to him and slipped, and part of his foot was severed by the mower blade.

The Whites were both named insureds on the homeowner’s policy for the home in Eads where John lived. State Farm, their insurer, regarded Austin as a relative who was a resident in his father’s household at the time of the accident and therefore an insured under the policy. Furthermore, State Farm said, Austin was a resident in Lizanne White’s household because he lived with her, she was a named insured on this policy, and therefore—from this angle too—Austin was an insured under the policy. Since the policy excludes coverage for bodily injury to an insured, there was no coverage for Austin’s injury.

The Whites, however, argued that by separating from John and moving to her own apartment, Lizanne had formed her own household. Austin was a resident in her household and was only visiting his father, and therefore he should not be regarded as an insured under the policy and State Farm should cover his injury.

The trial court ruled in favor of State Farm. When the Whites appealed, the court of appeals reexamined the situation. The court cited numerous cases in which courts ruled that a person could have more than one residence—and that is what the court decided that Austin had. His father kept a bedroom for him at the home in Eads and Austin kept some of his possessions there. Austin had a close relationship with both parents. “It appears from the record that a substantially integrated family relationship existed between Austin and Mother and between Austin and Father during the time that he lived with each one.” Therefore, the court agreed with State Farm that Austin was indeed a resident of his father’s household at the time of the accident.

The court of appeals also agreed with State Farm’s second line of argument. Lizanne White was still a named insured on the homeowner’s policy for the house in Eads, Austin was a resident of her household, and therefore he was an insured under the policy and therefore excluded from coverage.

See State Farm Fire and Cas. Co. v. White, Court of Appeals of Tennessee, Western Section, at Jackson. November 24, 1998 993 S.W.2d 40.

Some courts have taken the phrase “resident of your household” as inherently ambiguous, with at least two valid understandings when it comes to a child of divorced or separated parents, and therefore have ruled in favor of coverage for any incident involving that child.

American National Property and Casualty Company v. Burns

Nathan and Dora Sam divorced in 2013. Their son Phillip lived primarily with his mother, but when his father’s schedule allowed him to be in town, he stayed at his father’s place. On October 5, 2014, Phillip was staying with his father but they stopped by Dora’s house so Phillip could get his work uniform. He did, but he also took Dora’s boyfriend’s semi-automatic pistol, which had been in the master bedroom closet. The next morning, he shot and killed Tyler Burns with it, for which he was convicted of first-degree murder.

The Burns family sued Dora for negligent storage of a handgun and she demanded that her insurer defend her and cover any damages under their homeowner’s policy. Her insurer, however, pointed out that Phillip was a resident of Dora’s household and a minor under 21 in her care, he was an insured under her policy and her policy did not provide coverage for intentional or criminal acts by an insured. Dora, on the other hand, argued that Phillip was not a resident of her household at the time of the shooting because he was in his father’s household and care at the time.

The trial court granted a judgment in favor of the insurer, and Dora appealed. The court of appeals examined a number of statements from the Wyoming Supreme Court and concluded that the term “resident” in the policy is ambiguous. The court proposed an interpretation of the policy that would provide coverage for Dora, namely, that an individual cannot have two residences at the same time and that, therefore, Phillip must have had two alternating residences. When he was living with his mother, he was a resident of her household. When he was staying with his father, he was a resident of his household.

After all, the court pointed out, when Nathan and Phillip were dropping by Dora’s house to pick up Phillip’s uniform, Phillip didn’t just go into the house. They texted Dora first, suggesting that Phillip was not acting like a member of her household—free to come and go as he pleased—but like a member of his father’s. When he was arrested and booked, he also gave his father’s address as his residence.

The court did not say that this was the best reading or the most reasonable reading of the term “resident” in the policy, but only that it was a possible and reasonable one. Since the court concluded that there were at least two valid readings of the term “resident” in the policy, the term was genuinely ambiguous and so the court ruled in favor of coverage for Dora. Phillip was not, in fact, a resident of Dora’s household at the time of the shooting and therefore was not an insured. The shooting, therefore, was not an intentional act on the part of an insured and was not excluded from coverage by Dora’s homeowner’s policy.

See American National Property and Casualty Company v. Burns, 771 Fed.Appx. 854, 857 (C.A.10 (Wyo.), 2019).

Resident minors “in the care of” an insured

When the homeowner’s policy defines an “insured,” the first category includes “you and residents of your household who are your relatives,” but it also includes “residents of your household who are … other persons under the age of 21 and in your care or the care of a resident of your household who is your relative.”

This is the wording of the 2011 version. The 2000 version said “in the care of any person named above.” The intention was the same—those who were named on the previous couple of lines of the policy: you and resident relatives—but the use of the word “named” gave rise to the idea that this line in the policy might be speaking only of the named insured, those who were named above (on the Declarations page). The 2011 version, repetitive as it is, is clearer.

It is important to note, at the outset, that the policy is not speaking here of all minors who are in the care of the named insured or a resident relative. It is not speaking, for instance, of a child that the named insured is babysitting or of a child who is visiting in the home, even if the named insured or another resident relative does provide care for the child during that stay in the home. Rather, it is speaking only of minors who are residents in the named insured’s household at the time of the occurrence. Everything that was said above about the challenges associated with the terms “resident,” “relative,” “your,” and “household” applies here, too.

Again, simply being at the named insured’s house does not mean that a minor is “in the care of” the named insured, nor even does receiving some forms of care from the named insured. A guest eats and drinks at someone’s house, may spend the night there, and so on, but is not “in the care of” his or her host, even if the guest is a minor. The minor must be a resident of the household, but he must also be genuinely in the care of an insured in the household, either the named insured or a resident relative.

It should also be noted that the temporary absence of a caregiver does not mean that the minor is not in the care of that person at that time. If a fifteen year old girl’s legal guardian goes grocery shopping and leaves the girl alone at the house for an hour, the girl is still in her guardian’s care. So, too, if a seven year old boy is playing in the back yard and no one is watching him at a particular moment, that does not mean that he is in no one’s care at the moment. Just as parents are not required to supervise every moment of their children’s day, so too with those who care for minors. Whether a minor is “in the care of” an insured does not change by the minute, depending on how attentive the insured is.

Some courts have drawn up lists of criteria to help them determine whether a minor is in an insured’s care, including whether the insured is legally required to care for the minor (e.g., a guardian), whether the minor is dependent on the insured—particularly for financial support—and to what degree, whether the insured supervises or disciplines the minor (as opposed to leaving such things to the minor’s parent), the duration of the care and whether it is intended to be brief or ongoing, how old the minor is (because a minor who is 20 needs less care—if any—than a minor who is 2 years old), whether the minor is employed and therefore less financially dependent, and the state of the minor’s health (since someone with health problems needs greater care).

Key Takeaway: For a minor who is not a relative of the named insured to be considered an insured under the policy, he or she must be a resident of the named insured’s household and be “in the care of” the named insured or another resident relative. Courts weigh various factors to determine if a minor is merely present in the house or actually in the care of an insured in the household.

Cierzan ex rel. Weis v. Kriegel

Virginia Kriegel lived near her son’s family. She was elderly, diabetic, and blind. Her grandchildren—most often her grandsons, but sometimes her sixteen year old granddaughter, Jessica—came every day to help her and took turns staying overnight at her house. The grandchildren were expected to obey her rules when they stayed with her.

On August 2, 1998, Virginia Kriegel’s daughter took her shopping and she ended up staying at her daughter’s place that night. She was not aware that Jessica and a friend were at her house, watching a football game. Jessica had permission to be there any time she wished and her mother came and checked on her a couple of times. She planned to take the girls home, but Jessica’s friend had fallen asleep and so her mother let Jessica and the friend stay overnight. After all, Jessica had stayed overnight in her grandmother’s home before.

Her grandmother had forbidden smoking in her house, but Jessica disobeyed and her cigarette started a fire that resulted in her friend being badly injured. The friend sued. Virginia Kriegel’s insurer provided coverage for her, but did not provide coverage for Jessica. Jessica, although a relative and a minor, was not a resident and was not in the care of Virginia Kriegel at the time.

The trial court agreed, but the injured friend appealed. The court of appeals rejected one of the insurer’s arguments, namely, that Jessica could not have been in her grandmother’s care because her grandmother didn’t know she was at the house. “Physical presence of the insured caregiver is not necessarily required for someone to be in the insured’s care,” the court said. “To hold otherwise would mean that coverage could fluctuate by the hour, a patently unreasonable result.”

But the court examined the situation in the light of eight other criteria. Jessica was not dependent upon her grandmother. If anything, given her grandmother’s health, Virginia was dependent on her grandchildren’s care. Besides, Jessica was at the house to watch a football game, not to be supervised by her grandmother. The court concluded that Jessica Kriegel was not in the care of her grandmother and therefore was not an insured under her policy.

See Cierzan ex rel. Weis v. Kriegel, 259 Wis. 2d 264, 2002 WI App 317, 655 N.W.2d 217, 220 (Wis.App. 2002).

Foster children pose a challenge that the courts have often had to settle. A foster child is a person “under the age of 21” and in the care of the named insured or another resident of the named insured’s household. But the question that comes up is whether a foster child is a resident of the named insured’s household.

Courts recognize the need for consistency. Either the foster child is a resident and is therefore an insured, or he is not. An insurer may not regard a foster child as a resident and an insured in order to avoid covering his bodily injuries and then turn around and regard a foster child as not a resident and not an insured in order to avoid having to defend him and cover damages for his liabilities.

Schafer v. Summers

Courts have often concluded, then, that foster children are residents and are insured under the homeowner’s policy.

Jason Schafer, Jr., who was about eighteen months old, was in the care and custody of Wayne and Sheri Summers, his foster parents. On January 31, 2009, he found and consumed some pain medication that had allegedly fallen out of Wayne’s pants, which were on the floor of his closet. As a result, Jason lost consciousness and stopped breathing for a while, resulting in permanent brain damage.

His biological parents sued and the Summers expected their insurer to cover them for the damages. Their insurer, however, said that Jason was a resident of their household and an insured under the policy and that the policy excluded coverage for bodily injury to an insured. The trial court agreed, but Jason, through his representatives, appealed that decision, arguing that as a foster child he was only residing with the Summers family temporarily and would have returned to his natural parents whenever that was permitted.

The court of appeals, however, did not regard the phrase “resident of the named insured’s household” as ambiguous. Jason was living with the Summers family and was in their care and therefore was an insured under their policy. The court upheld the trial court’s decision: There was no coverage for Jason’s bodily injuries.

See Schafer v. Summers, Court of Appeal of Louisiana, First Circuit. February 15, 2013 113 So.3d 2192012-0730 (La.App. 1 Cir. 2/15/13).

In the case of an unmarried couple living together, where one of them has a minor child—for instance, a named insured living with his girlfriend and her child—that child may be viewed as being “in the care of” the named insured, even though he has no legal custody of the child, because he is providing the child with food, clothing, shelter, and so on. The child is, to some degree at least, dependent upon him.

Hanson Farm Mut. Ins. Co. of South Dakota v. Degen

Tina Sellers and Marcus Degen met in 2006 and decided to move in together. Marcus bought a house in 2007, and Tina shared it, along with her two daughters, Adrianna and Zeraya. Marcus alone was the named insured on the homeowner’s policy.

On October 27, 2007, Marcus was operating a skid loader on his property and accidentally hit and killed Adrianna. Eventually, the couple separated and Tina initiated a wrongful death action against Marcus. His insurer, however, questioned whether Adrianna was an insured under the policy, since the policy excluded coverage for bodily injury to an insured. The trial court did not grant a summary judgment because, it said, there were issues of material fact that had to be resolved to determine whether Adrianna was in Marcus’s care. In the trial, the court came to the conclusion that she was in his care and therefore that the policy’s exclusion of coverage for her death did apply.

When Tina appealed, the Supreme Court examined the facts again, looking at a number of key factors. Marcus had not adopted the girls and was not legally responsible for Tina’s daughters, but they did depend on him. He paid the housing costs, providing them with a home. He shared household duties with Tina and helped raise the girls, including taking part in decision-making with regard to the girls’ discipline, church attendance, education, and recreational activities. The girls called Marcus “Dad” and he loved them. He also included them as his beneficiaries in his retirement plan.

The Supreme Court concluded that the trial court was correct: the phrase “in the care of” is not ambiguous and, furthermore, the evidence indicated that Adrianna was in Marcus’s care. The policy’s exclusion of coverage for bodily injury to an insured did apply to her death, so that Marcus’s insurer had no duty to defend him or to cover any damages awarded in the wrongful death suit.

See Hanson Farm Mut. Ins. Co. of South Dakota v. Degen, 829 N.W.2d 474, 476, 2013 S.D. 29 (S.D.,2013).

There has been some disagreement about how broadly “care” should be interpreted. In some cases, it has been taken to refer to financial support, custody, supervision, and responsibility for someone. But some courts have interpreted it broadly, so that even someone who is not a legal guardian but who has, for instance, a minor child living regularly in his home has been regarded as that child’s caregiver so that the child is an insured under his policy. In some cases, the phrase “in the care of” has been interpreted differently by the trial court, the court of appeals, and the Supreme Court. It has sometimes been regarded as ambiguous and sometimes as unambiguous. Because there are so many factors that can be considered in determining if someone is in someone else’s “care,” a trial—as opposed to a summary judgment by the trial court—is often appropriate.

Henderson v. State Farm Fire & Cas. Co

Dawn Mysierowicz’s parents were going through a divorce, and Bonnie Twitchell, the mother of Dawn’s boyfriend, Travis, agreed to let Dawn stay at her home temporarily. On June 19, 1993, Daniel Henderson visited Bonnie Twitchell’s home, where she lived with her son, Travis, and his girlfriend, Dawn Mysierowicz. There was an altercation with some strangers in front of the house and Henderson was stabbed. He sued Travis Twitchell and Dawn Mysierowicz because, he said, they had negligently provoked the strangers.

State Farm agreed to defend Travis Twitchell under his mother’s homeowner’s policy, but not Dawn Mysierowicz. Henderson received a judgment for $75,000 against Mysierowicz, who then assigned all rights, benefits, and claims she had against State Farm to him. Henderson complained, but State Farm denied any liability for Mysierowicz’s damages. She was a guest in the Twitchell home, State Farm said, not an insured.

The trial court agreed: “Dawn Mysierowicz was at the age of 18, a legal adult suffering from no physical or mental disabilities. She resided with the Twitchells and was not under their control, guidance, supervision, management or custody.” And therefore, the court concluded, she was not “in the care of” Bonnie or Travis Twitchell and was not an insured. State Farm had no obligation to defend her under their policy.

Henderson appealed and the court of appeals reexamined the situation. It examined previous cases and consulted dictionary definitions of “care” that, in its opinion, justified taking the term quite broadly and indeed regarding it as ambiguous in the policy. The court noted that Mysierowicz had a job, did not pay rent or living expenses in the home, bought her own clothes and took care of her own vehicle. Bonnie Twitchell provided for her, though she did not control or supervise her in any way, and regarded her as a family member.

The court said, “We therefore believe that even though Dawn Mysierowicz lived with the Twitchells under a temporary arrangement, was free to leave at any time, contributed little to the household, and was not answerable to Bonnie Twitchell or Travis Twitchell, she came within the definition of an ‘insured’ because she was ‘in the care of’ Bonnie Twitchell.” And so the court reversed the trial court’s judgment and ruled in favor of coverage under Bonnie Twitchell’s homeowner’s policy.

State Farm appealed, however, and the Supreme Court rejected the court of appeal’s broad interpretation of the phrase “in the care of” and especially its conclusion that the phrase is ambiguous. It listed criteria to determine whether a person is in someone’s care and evaluated Mysierowicz’s situation accordingly.

On the one hand, Mysierowicz did not pay rent or household expenses or do chores, and Bonnie Twitchell provided her with food and shelter and “virtually total financial support.” As well, “Travis hoped that everyone regarded Mysierowicz as a member of the family and considered the three of them to be living as one family unit.”

On the other hand, Mysierowicz was eighteen years old, living there only temporarily, purchased her own personal items and maintained her car, had a telephone in her name, was not under the control of either Bonnie or Travis, and was free to come and go as she wished. Bonnie Twitchell had not signed an agreement to take care of her and did not think she was responsible for her. All of that evidence would indicate that Mysierowicz was not in the care of either Bonnie or Travis Twitchell.

The Supreme Court did not, however, resolve that matter. It reversed the judgment of the court of appeals, but also disagreed with the trial court’s granting of summary judgment. Looking at the evidence, it said, a summary judgment was inappropriate. There was evidence to support either conclusion and so the Supreme Court sent the case back for a trial.

One judge dissented, citing previous cases that came to different but reasonable conclusions, and argued that, contrary to the majority’s ruling, the term “in the care of” really is ambiguous and the ambiguity should have been resolved in favor of coverage under the policy.

See Henderson v. State Farm Fire & Cas. Co., 225 Mich. App. 703, 572 N.W.2d 216, 217 (Mich.App. 1997) and Henderson v. State Farm Fire and Cas. Co., Supreme Court of Michigan. July 8, 1999 460 Mich. 348596 N.W.2d 190.

Not every minor who lives with someone is under that person’s care, though. A healthy, employed young person between 18 and 20 years of age, for instance, may live with and eat with someone—receiving a certain sort of “care”—and yet be largely independent. A boarder is not in the care of the person he lives with.

Lang v. Hanover Ins. Co.

In April 2000, Richard Bachman fired a paintball that struck David Lang in the eye, injuring him. At the time, Bachman was living at the home of John and Elizabeth Durbin. Lang obtained a judgment against Bachman and expected the Durbin’s homeowner’s policy to provide coverage. The insurer, however, objected that Bachman was not insured under the policy. Though he lived with the Durbins, he was not in their care. The Supreme Court agreed, and Lang appealed.

The court of appeals noted that, though Bachman was under the age of 21, the Durbins had not assumed any financial, emotional, or disciplinary responsibility for Bachman. He was 20 years old, finished with school, and seeking employment. He said that he had moved in with the Durbins because he was a friend of their son was and was frequently in the house anyway and thought it was “cooler to live with [his] friends.” He said that he paid his own bills and paid rent when he could. The court concluded that Bachman was not in the Durbin’s care and that their insurer was not required to provide coverage for his liabilities.

See Lang v. Hanover Ins. Co., Supreme Court, Appellate Division, Third Department, New York. March 20, 2008 49 A.D.3d 1068853 N.Y.S.2d 691 2008 N.Y. Slip Op. 02536.

(2) The second class of people the policy regards as “insureds” are students in certain circumstances:

b. A student enrolled in school full-time, as defined by the school, who was a resident of your household before moving out to attend school, provided the student is under the age of:

(1) 24 and your relative; or

(2) 21 and in your care or the care of a resident of your household who is your relative

This section of the homeowner’s policy was added in 2000 to help resolve challenges relating to determining the status of students. The 2000 version had, in the last line, “… or the care of a person described in a.(1) above.” Perhaps because a.(1), read out of context, speaks only of “your relative,” which could give rise to misunderstandings, the 2011 version specifies exactly who is meant: “a resident of your household who is your relative.” The policy recognizes that students go away to school without becoming completely independent. They often continue to regard their parents’ home as their home, their parents’ household as their household, their old bedroom as still their bedroom in their house, and so on. And so the policy continues to regard students who have moved out to attend school as insureds, provided they meet certain qualifications.

The first qualification mentioned is that they must be students “enrolled in school full-time, as defined by the school.” In most schools, where the standard load is 16 credits, hours, or units, a student who takes 12 or more is considered full-time, but that may vary from school to school and what matters is what the school itself requires.

The second qualification is that the student have been “a resident of your household”—the household of the named insured—“before moving out to attend school.” Everything said about the complexities of the terms “resident” and “household” above would apply here, too. The timing is important, as well: For the student to be an insured under the policy, he must have been a resident of the named insured’s household before moving out to attend school.

The third qualification has to do with the student’s age. The policy is not talking about all students however old they are. It is speaking specifically of students who are either relatives of the named insured (or a resident spouse) and under the age of 24 or who are younger than 21 and in the care of the named insured or a resident relative.

The policy thus distinguishes between students who are relatives and students who are not relatives but are in the care of an insured. A daughter who is 23 and is a full-time student is still considered an insured under the policy but, for instance, a live-in girlfriend’s son who is a full-time student would be considered an insured only if he is still a minor. Only minors, after all, are considered to be “in the care of” an insured; once a person is no longer a minor, he is no longer in someone’s care and therefore is no longer an insured.

Key Takeaway: To be an “insured” under the homeowner’s policy, a student must be enrolled full-time, by the college’s definition of “full-time,” must have been a resident of the named insured’s household before moving out to attend school, and must be under a certain age, depending on whether he or she is a relative of the named insured or a minor in the care of an insured.

One question that might arise in connection with this definition has to do with breaks in the school year. A student who is enrolled as a full-time student at a college would be considered a full-time student during the winter break. But there may be some question about the status of a student who was enrolled full-time for the school year and now is on her summer break without yet enrolling for the next year of school. If she returns to her parents’ home, she would be considered a resident relative, of course, but it’s possible she might decide to stay with friends over the summer or to work a summer job in the place where her college is or to travel for the summer. If a question were raised about her status, a court would have to consider and weigh various factors to determine if she is, indeed, to be considered a full-time student—even though not attending classes at the moment—and an insured under the homeowner’s policy.

(3) There is a third category of people who are considered insureds under the homeowner’s policy with regard to liability (Section II).

c. Under Section II:

(1) With respect to animals or watercraft to which this policy applies, any person or organization legally responsible for these animals or watercraft which are owned by you or any person described in 5. a. or b. “Insured” does not mean a person or organization using or having custody of these animals or watercraft in the course of any “business” or without consent of the owner; or

(2) With respect to a “motor vehicle” to which this policy applies:

(a) Persons while engaged in your employ or that of any person described in 5. a. or b.; or

(b) Other persons using the vehicle on an “insured location” with your consent.

© Insurance Services Office, Inc., 2010.

The only difference between the 2000 version and the 2011 version is that the older version spoke of persons “included in” the first two categories and the newer version speaks of persons “described in” those categories (and, for greater clarity, the newer version identifies the categories as “5.a. or b,” while the older version had just “a. or b.”).

This category has two main subsections.

Animals and Watercraft

First, it addresses a situation that involves animals or watercraft to which the homeowner’s policy applies. Certain watercraft are not covered by the policy at all. But here, the definition is speaking of watercraft to which the homeowner’s policy does apply. If another person (or organization) is legally responsible for an insured’s animal or watercraft, then that person (or organization) is included in the policy’s definition of “insured” when it comes to liability.

If Glenda goes on vacation and leaves her dog with her friend Carolyn for two weeks and the dog gets out and bites a delivery person, the delivery person may sue both Glenda and Carolyn. But because Glenda entrusted the dog to Carolyn and Carolyn was legally responsible for it, Carolyn is considered an insured under Glenda’s homeowner’s policy. Her insurer is obligated to defend both Glenda and Carolyn and to compensate them for damages they may have to pay. What that also means, though, is that if Glenda’s dog bites Carolyn, there would be no coverage for the injury. As the person legally responsible for the dog, Carolyn is an insured and the policy does not provide coverage for bodily injury to an insured.

If Jeff lets the Jolly Pirates Sailing Team borrow his sailboat for a race and an accident occurs in which someone on another team is injured by Jeff’s boat, Jeff is liable and so is the Jolly Pirates organization. But because the watercraft exclusion in the policy does not apply to sailing vessels and because the Jolly Pirates were legally responsible for Jeff’s vessel at the time, that organization would be considered an insured under Jeff’s policy with regard to their liability.

The policy makes it clear, though, that the other person or organization must not be using the animal or vehicle or have the animal or vehicle in its possession in the course of “business” (as defined in the policy above). If you leave your dog with a business that provides boarding for animals while their owners are away on business or if you leave your dog at the vet for a treatment and the dog bites another customer, the pet boarding business or the vet is not regarded as an insured under the homeowner’s policy. Similarly, if you loan your sailboat to a company that rents out sailboats and an accident occurs involving your boat, the sailboat rental company is not an insured under your homeowner’s policy.

The policy also makes it clear that, to be an insured under the policy, the other person or organization must have the animal or watercraft with its owner’s consent. If you are away on vacation and your dog gets out and a neighbor takes the dog in and cares for it during your absence but doesn’t talk to you about it and get your consent, your neighbor is not an insured under your policy. Similarly, if a guest at your cabin takes your boat without your consent and causes property damage, he is not insured under your policy. He is responsible for his own liability; your insurer will not defend him and compensate him for anything he is required to pay.

Key Takeaway: The homeowner’s policy includes as “insureds” persons or organizations who are legally responsible for an insured’s animals or watercraft. But they are not “insureds” if they do not have the owner’s permission or if they are using or having custody of the animals or watercraft in connection with a business.

Malik v. American Family Mut. Ins. Co.

Christina Malik was a friend of Matthew and Patricia Herman. The Hermans were going on a week-long vacation and asked Malik to take care of their springer spaniel, Corky. Malik agreed and brought Corky to her house. A few days later, Corky bit Malik on the hand and the Humane Society took Corky away. Malik alleged that the Hermans had been negligent, said they were liable for double her damages as a result of the injury, and expected their insurer to cover the damages under their homeowner’s policy. The Hermans’ insurer, however, denied any liability. Malik was legally responsible for Corky and therefore was an insured under the policy, which excluded coverage for bodily injury to an insured. The trial court agreed and Malik appealed, but the court of appeals upheld the trial court’s decision. “Based on the undisputed facts, Malik was legally responsible for an animal owned by the Hermans at the time she was injured, and the animal was in her custody not in the course of business and with the Hermans’ specific permission.” Malik was an insured by the policy’s definition, and therefore “the policy does not provide coverage to the Hermans for any liability they may have to Malik for those injuries.”

The court of appeals also concluded that Malik was a keeper of the dog and therefore could not recover damages from the Hermans, let alone the double damages she was seeking, even if they were negligent.

See Malik v. American Family Mut. Ins. Co., 243 Wis. 2d 27, 2001 WI App 82, 625 N.W.2d 640, 643 (Wis.App. 2001).

American Family Mutual Insurance Company v. Williams

In October 2012, David Williams came to visit his college friend, Anthony Van de Venter, and his wife, Jeanette. The Van de Venters owned a black labrador named Emma. On October 23, the Van de Venters went to work. They told Williams that if Emma wanted out, she would ring a bell by the front door. They did not tell him to take her for a walk, but when Emma scratched on Williams’s door, he put on her leash and took her for a walk. An hour or so later, he heard the bell ring and took her outside on a leash again. Another dog barked and suddenly Emma jerked forward. Caught off guard, Williams fell to the ground and injured his shoulder badly. He sued the Van de Venters for negligence and failure to provide reasonable care for him as a guest. The Van de Venters’ insurer said that Williams was an insured because he was a person legally responsible for an animal belonging to an insured. Therefore, the policy’s exclusion of coverage for bodily injury to an insured applied to Williams. The district court did not agree, the insurer appealed, and the court of appeals affirmed the original decision. Emma was not on Williams’s own property; he was not harboring her. He did not possess her in any sense. He did not control her, nor was he responsible to feed her or care for her. “Except for the brief moments when he walked outside with her, he did not interact with Emma at all. Even then, it seems that his physical control was very limited: their first contest of wills resulted in his injury.” He was just a “houseguest who twice accompanied his host’s dog outside as it did its business.”

The court pointed out that if just having her on a leash meant he was legally responsible for her, then “it would render an unsuspecting bystander legally responsible for the dog whose leash he holds while the dog owner ties her shoe,” a conclusion the court found absurd. In fact, “if any person exercising any control over an animal were legally responsible for it under the policy, then nearly all interactions with animals would be excluded from policy coverage.” That is not how an average policyholder would understand what the policy says.

The court concluded that Williams was not an insured under the Van de Venters’ policy, and therefore the exclusion of coverage for bodily injury to an insured did not apply. The insurer was required to defend the Van de Venters and cover any damages awarded for Williams’s injury.

See American Family Mutual Insurance Company v. Williams, United States Court of Appeals, Seventh Circuit. August 8, 2016 832 F.3d 645.

Wiese v. Mutual of Enumclaw

Charles and Ann Thomas were staying at their cabin on Priest Lake. Late in the evening of August 20, 1983, they and some friends—Renae Faulkner, Skip Wiese, Donald Deno, and Don Reynolds—were out on the lake in their boat and decided to go skinny dipping. Mrs. Thomas, who was driving the boat, stopped it. Several people got into the water. Charles Thomas stayed on board, but Skip Wiese got back into the boat and pushed Charles off into the water. He landed on Renae Faulkner, injuring her seriously.

Wiese expected the Thomas’s insurer to regard him as an insured under their policy. He said that he was legally responsible for his actions on the boat. The court, however, noted that the policy defined an insured as someone legally responsible for the boat itself. Wiese wasn’t. He was only a passenger, and therefore was not an insured and not covered by the Thomas’s policy.

See Wiese v. Mutual of Enumclaw, Court of Appeals of Washington, Division 3, Panel Three. December 15, 1987 49 Wash.App. 906746 P.2d 848.

Motor Vehicles

The second part of this category has to do with the sorts of motor vehicles to which the policy applies—not all motor vehicles, but only the ones that are not excluded from coverage by the policy. If there is motor vehicle liability, then the policy includes two other sorts of people as insureds, besides the named insured and a resident spouse and other insureds who are defined in 5.a. and 5.b.

First, a person who is employed by the named insured or a resident spouse or any other insured as defined in 5.a. and 5.b. and who is liable for damages arising from a motor vehicle in connection with that employment is an insured under the policy. If Mr. Strouse’s mother-in-law is living at his house and decides to pay the neighbor’s son to mow the lawn, she is a resident relative and therefore an insured and he is engaged in her employ. If he’s using a riding mower—a motor vehicle—and injures a guest who is arriving at the Strouse’s house, he would be considered an insured with regard to that motor vehicle liability.

When the policy speaks of an employee, however, is it not speaking of a business employee, but rather of an employee as that term is defined elsewhere in the policy.

MFA Mut. Ins. Co. v. Nye

Todd Nye, a fifteen year old high school student on his summer vacation, was using Mr. Dickherber’s riding lawnmower to cut the grass at the Dickherber’s house. He was a neighbor and Mr. Dickherber had hired him to do yard work over the course of the summer. Jennifer Dickherber was riding her bicycle in the yard when she was suddenly struck by the riding lawnmower and her right foot was amputated.

The Dickherbers filed claims against their own insurer, Aetna Casualty and Surety, as well as Todd Nye’s parents’ insurer, MFA Mutual. Both insurers denied liability for coverage. MFA said that coverage for Todd was excluded because he was engaged in a business pursuit. Both the trial court and the court of appeals rejected this argument, nor did they accept MFA’s argument that coverage was excluded because the injury did not take place on the Nye’s insured premises.

Aetna likewise argued that coverage was excluded because the injuries arose out of business pursuits—an argument the courts rejected—but added another argument. Todd was employed by the Dickherbers, but he was not a full-time employee of Mr. Dickherber in his electrical contracting business. The court noted that the policy in question was a homeowner’s policy, not a business policy, and it wouldn’t make sense for it to be speaking of Mr. Dickherber’s business employees.

The courts concluded that Todd was employed by the Dickherbers and therefore was an insured under their policy.

See MFA Mut. Ins. Co. v. Nye, Missouri Court of Appeals, Eastern District, Division Two. December 16, 1980.

Second, other persons who are using the motor vehicle on an insured location with the consent of the named insured or a resident spouse—not of any other insured—are considered insureds under the policy. If Daniel Phillips and his friends are riding his snowmobiles all over his farm, they are on an insured location and he has consented to their use of his snowmobiles. Should an accident take place so that one of his friends gets injured, that friend would be an insured under the policy. Therefore, the policy’s exclusion of coverage for bodily injury to an insured would apply to that friend.

Key Takeaway: In the case of motor vehicle liability, employees of any insured—as defined elsewhere in the policy—and others who are using the motor vehicle, with permission, on an insured location are included as “insureds.”

Section 9: “Insured Location”

The only difference between the 2000 version and the 2011 version of this definition is the presence of hyphens in f: “one, two, three or four family dwelling” (2000) became “one-, two-, three- or four-family dwelling” (2011). There is no difference in meaning, and the change does not affect the coverage that the policy provides.

HO 00 03 10 00—2000 Version

6. “Insured location” means:

a. The “residence premises”;

b. The part of other premises, other structures and grounds used by you as a residence; and

(1) Which is shown in the Declarations; or

(2) Which is acquired by you during the policy period for your use as a residence;

c. Any premises used by you in connection with a premises in a. and b. above;

d. Any part of a premises:

(1) Not owned by an “insured”; and

(2) Where an “insured” is temporarily residing;

e. Vacant land, other than farm land, owned by or rented to an “insured”;

f. Land owned by or rented to an “insured” on which a one, two, three or four family dwelling is being built as a residence for an “insured”;

g. Individual or family cemetery plots or burial vaults of an “insured”; or

h. Any part of a premises occasionally rented to an “insured” for other than “business” use.

© Insurance Services Office, Inc., 1999

HO 00 03 05 11—2011 Version

6. “Insured location” means:

a. The “residence premises”;

b. The part of other premises, other structures and grounds used by you as a residence; and

(1) Which is shown in the Declarations; or

(2) Which is acquired by you during the policy period for your use as a residence;

c. Any premises used by you in connection with a premises in a. and b. above;

d. Any part of a premises:

(1) Not owned by an “insured”; and

(2) Where an “insured” is temporarily residing;

e. Vacant land, other than farm land, owned by or rented to an “insured”;

f. Land owned by or rented to an “insured” on which a one-, two-, three- or four-family dwelling is being built as a residence for an “insured”;

g. Individual or family cemetery plots or burial vaults of an “insured”; or

h. Any part of a premises occasionally rented to an “insured” for other than “business” use.

© Insurance Services Office, Inc., 2010

What: The policy defines the insured premises as including

* the residence premises (defined below);

* a part of any other premises, structures, or grounds the named insured or a resident spouse is using as a residence,
so long as it is included in the declarations or was acquired during the policy period;

* any other premises used by the named insured or a resident spouse in connection with the ones already
mentioned;

* any part of a premises that an insured does not own but where he or she is temporarily living;

* vacant land, other than farm land, that an insured owns or rents;

* land owned or rented by an insured on which a one- to four-family dwelling is being built in order to be a
residence for an insured;

* an insured’s cemetery plot or burial vault; and

* any part of a premises that an insured occasionally rents, so long as it is not for business purposes.

Key Takeaway: The homeowner’s policy defines an “insured location” to include the places where a named insured resides, places he or she uses in connection with a residence, as well as premises where any insured lives, vacant land any insured owns, land where a residence for an insured is being built, an insured’s place of burial, and premises an insured occasionally rents. All of these locations have something to do with an insured’s place of living, not an insured’s business.

There are eight categories of “insured premises” included in the policy’s definition:

(a) The residence premises: The “residence premises” are defined later in the policy (Definition 11). They are the one-family dwelling where the named insured resides or a multi-family dwelling—up to four units—where the named insured resides in at least one of those units or the part of some other building where the named insured resides (e.g., the named insured owns a store and lives in the rooms above it). The “residence premises” are the location indicated on the Declarations page. “Residence premises” includes not only the building (or part of it) but also its grounds—the lot or lawn around it—and other structures at that location. Potential issues relating to the definition of the “residence premises” are discussed in connection with the policy’s definition below.

(b) The part of other premises, other structures and grounds used by you as a residence: While the homeowner’s policy includes only one “residence premises,” the policy does recognize that a homeowner may have more than one premises (including other structures and grounds) that he or she uses as a residence. Someone who has a primary residence—which would be the “residence premises”—may also have one or more secondary residences. For instance, a homeowner may have a cabin or a beach house where she spends some weeks during the year.

For such a secondary residence to be considered an “insured location,” however, it must be either “shown in the Declarations” or “acquired by you”—that is, purchased by a named insured—“during the policy period for your use as a residence.” The policy does not specify that premises in this category must be owned by the named insured, but it does use the word “acquired.” If Mr. DeJong owns and occupies a house in town, which is his residence premises, but also buys a beach house in the middle of his policy period with the intention of using it as a residence—perhaps for a couple of months in the summer—that beach house is not his residence premises but it is still considered an insured location. But when the policy period comes to an end and the policy comes up for renewal, Mr. DeJong needs to include that beach house in the Declarations in order to maintain coverage on it as an insured location. Some insurers may even prefer that Mr. DeJong get a second, separate policy for his beach house.

For these other premises to be considered an insured location, however, they must be intended for use as the named insured’s residence. If, instead of buying a beach house, Mr. DeJong buys another building in town in order to use it as his office for business purposes, it would not be considered an insured location, even if Mr. DeJong occasionally spends the night there. As well, if Mr. DeJong buys a beach house with the purpose of renting it out instead of residing there himself, it would not be considered an insured location. The ownership of two homes, one of which is the named insured’s residence and the other of which is not, sometimes raises questions that have to be resolved by a court. If one of the dwellings is the residence premises, can the other still be considered an “insured location” because it is “part of other premises … used by you as a residence”?

Harrington v. Citizens Property Ins. Corp.

Bruce and Janet Harrington owned a house on Mozart Road in West Palm Beach, Florida, and another house on Vallette Way. They lived in the Mozart house and rented out the Vallette house. When a man was injured while working on the Mozart house, he filed a claim against the Harringtons who turned to their insurer for liability coverage. Their insurer, however, denied coverage because their homeowner’s policy was for the Vallette house.

The Harringtons filed a complaint, arguing that the Mozart property was nevertheless an insured location and, as the place they lived, was their residence premises. The trial court found in favor of the insurer, but the Harringtons appealed.

The court of appeal did not accept the Harringtons’ argument that their Mozart house was their residence premises. The policy explicitly said that the residence premises not only must be “where you reside” but also must be “shown as the ‘residence premises’ in the Declarations,” and the Declarations showed the Vallette house as the residence premises, not the Mozart property.

But the court of appeal did agree with the Harringtons that, even so, the Mozart house was an insured location. The policy defines an insured location as “the part of other premises, other structures and grounds used by you as a residence and which is shown in the Declarations.” The Mozart house was “other premises” and was used by the Harringtons as their residence.

But was it “shown in the Declarations”? For “Location of the Residence Premises,” the Declarations had the Vallette house. Only the Vallette house was “residence premises.” But for “Named Insured and Mailing Address,” the Declarations had “Bruce Harrington, Janet Harrington, 477 Mozart Rd.” While it was only listed as their mailing address, the Mozart house was nevertheless “shown in the Declarations.”

For residence premises, the policy specified that it had to be “shown as the residence premises.” But it did not specify how a property had to be “shown in the Declarations” in order to be considered an insured location. Even if this phrase is deemed ambiguous, it would have to be resolved in favor of coverage. And therefore the court, while recognizing that the insurer had probably not intended any such thing, reversed the trial court’s decision and ruled in favor of coverage for the Harringtons.

See Harrington v. Citizens Property Ins. Corp., District Court of Appeal of Florida, Fourth District. December 15, 2010 54 So.3d 99935 Fla. L. Weekly D2838.

Varsalona v. Auto-Owners Ins. Co.

In October 2002, Elaine and Rocky Varsalona purchased a house in Marietta, Georgia, and obtained a homeowner’s policy with that house listed as the residence premises. At the time, according to the Varsalonas, they intended to sell the property they were living in and move into this new house temporarily, while building a new, permanent residence. Their current home did not sell quickly, and so they didn’t move. Instead, their daughter and granddaughter moved into the new house.

In February 2003, the Varsalonas discovered that a portion of the slab collapsed under the new residence, damaging the house. Their insurer denied coverage because they were not residing in the house at the time and had, in fact, never resided there.

The Varsalonas sued, the trial court found in favor of the insurer, and the Varsalonas appealed, arguing that the had intended to use that home as their residence when they bought it and that the policy explicitly said that it covered not only the residence premises but also “any other premises you acquire during the policy term and which you intend to use as a residence premises.”

The court of appeals, however, disgreed. While the policy did include that statement as part of its definition of an insured location, it didn’t apply to the Varsalonas’ home because their home was listed as their “residence premises.” The same property cannot both be residence premises (the first category under “insured location”) and also be “any other premises” (the second category under “insured location”). But since it was listed as “residence premises”—defined as the house “where you reside”—and the Varsalonas did not in fact reside there, the policy provided them with no coverage for that house.

See Varsalona v. Auto-Owners Ins. Co., Court of Appeals of Georgia. September 21, 2006 281 Ga.App. 644637 S.E.2d 6406 FCDR 2961.

(c) Any premises used by a named insured or resident spouse (“you”) in connection with the premises in a. and b. above: This category is the least precisely defined of the eight categories of insured locations.

It requires use, but not residence. The policy is not referring here to anything on the grounds of the residential premises or the premises described in (b) above. After all, the policy defines “residential premises” as including the grounds and other structures, and (b) above speaks explicitly about other grounds and structures used as a residence. So, for instance, if a named insured had a basketball court on his property, on the same grounds as his house, it would be considered part of the residence premises. It would not fall into category (c). Category (c) deals with a location that is not included in (a) or (b)—not a residence—but that is used in connection with those premises.

The policy also does not state that the named insured must own these premises. It might be possible to argue that because category (a) spoke only of “where you reside” but implied ownership and category (b) spoke of use but implied ownership and used the word “acquired” and because only in category (d) does the policy speak explicitly of property not owned by an insured, it must follow that category (c) is also speaking of premises owned by the named insured. But courts have not adopted this line of reasoning.

The policy here speaks merely about the named insured’s use of these premises—including buildings, structures, and grounds—and that may raise questions. For instance, what about a named insured’s use of his neighbor’s field as a place he regularly—and with permission—rides his ATV? And must use be regular or frequent or is a one-time use sufficient? The use is said to be by “you,” that is, by a named insured or resident spouse, which may raise questions about premises that are used, not by the named insured but by his or her children, with or without parental approval.

As well, the policy employs the phrase “in connection with,” but without defining what that connection might entail or how close such a connection would have to be for these premises to be considered an insured location. Generally, though, courts want to see that there is a clear-cut connection between the place or places where the named insured resides (categories [a] and [b]) and these other premises.

What kinds of premises, then, does the policy have in view? One example might be a garage that the named insured owns for his vehicle but that is not on his residence premises or a boathouse that he uses to store his rowboat near his cabin on the lake. The named insured might rent a storage unit to house some possessions he has no room for in his house. If they are not business possessions but are possessions associated with his home, such as furniture and clothing, the storage unit functions as a sort of extension of the home and the use of the storage unit is connected to the use of the insured’s residence. On the other hand, rentals such as the ones described here might fall under category (h) instead.

Category (c) might also might also include certain easements, access roads, trails, or even fields (though vacant land falls under category [e]). But whether or not some location falls into this category is often a matter that a court has to decide and what a court in one jurisdiction suggests a court in a different jurisdiction may reject.

Utica Mut. Ins. Co. v. Fontneau

Edward Fontneau owned two parcels of land in Norton, Massachusetts. The first, 380 Old Colony Road, consisted of eleven acres of land. On it, Fontneau had built a large metal building used for equipment and for offices for his construction business. Behind it was the other parcel of land, 378 Old Colony Road, which consisted of about two acres and had a two-family house on it that Fontneau rented to tenants. Behind the house was an upper and lower backyard, separated by a concrete retaining wall, so that the lower area could not be accessed by vehicles coming from the front of 378. There was, however, a dirt track connecting that lower backyard to the back of 380, and that dirt track was the only vehicle access—and the easiest pedestrian access—to that lower backyard from 380.

Fontneau collected antique automobiles and stored four of them in that lower backyard. On March 23, 1995, when he learned that the children of his tenants of 378 Old Colony Road had vandalized his cars, he contacted the police and arranged to meet Officer Edward Burbank that evening in front of 380. But when Burbank came, no one was present and so, knowing where the cars were, Burbank proceeded to walk down the dirt track. On his way back from looking at the cars, he ran into part of a backhoe parked near the track and was injured.

Fontneau’s insurer declined coverage for the injuries because they said that the dirt track was not an insured location. The case came before a trial judge, who ruled in favor of coverage for Fontenot. Because the Massachusetts Court of Appeals had ruled in another case that “the term ‘insured location’ is intended and appropriately understood to be limited to the residence and premises integral to its use as a residence,” the insurer appealed, arguing that “integral” means “essential to completeness” and “nothing about the [dirt track] behind 380 was essential to the ‘completeness’ of 378 as a residence.”

The court of appeals noted that in that previous decision—and in the decisions of other courts—three main criteria were considered: “(1) the character of the use as a residentially related activity; (2) the distance between the residence and the site; and (3) the resulting reasonable foreseeability of the risk of the connected activity on the site to the insurer. Under these criteria one would anticipate that common residential behavior close to home and foreseeable to the insurer will increase the probability of coverage of the site. The probability of coverage will decline as the activity becomes more unusual, more remote from the residence, and therefore less foreseeable to the insurer.” The insurer has included the possibility of an insured site separate from the residence premises, but the determination that such a site is an insured location “should not inflict unfair surprise or burdensome risk upon the insurer.”

In the case of Fontneau’s antique cars, the court recognized that storing an automobile in a garage or on a yard “qualifies as a residential activity,” that the dirt track was “the only vehicular access and the most convenient pedestrian access” to that yard and Fontneau could not have stored his cars there without it, that the track was very close to the residence at 378 Old Colony Road, and that Fontneau had stored his cars there for years without objection on the part of his insurer so that an incident relating to them or to the access to them was not unforeseeable by the insurer.

The court of appeals upheld the decision of the trial court and found in favor of coverage for Fontneau for Burbank’s injuries.

See Utica Mut. Ins. Co. v. Fontneau, Appeals Court of Massachusetts, Middlesex. October 25, 2007 70 Mass.App.Ct. 553875 N.E.2d 508.

Erie Ins. Exchange v. Szamatowicz

Not all courts have considered the distance from the premises where the named insured resides to be a relevant factor, however. A storage unit may be some distance from the insured’s house and yet be used to store an insured’s belongings as a sort of extension of the house. In some cases, a location rented for a private, non-business-related party has been considered an insured location because it, too, is a residential function carried out in a separate location. Other courts, however, have drawn just the opposite conclusion.

Grzegorz Szamatowicz was expecting between 100 and 150 guests at his birthday party on September 16, 2001. The party would be too big to fit comfortably in his home and the music and noise would be too loud for his infant son to sleep, and to he subleased a warehouse. There was a fire at the warehouse that night and two women were injured. Szamatowicz’s insurer sought a declaration from the court that the homeowner’s policy did not provide coverage for the accident because it took place at the warehouse and not at Szamatowicz’s home.

The trial court, however, gave a judgment in favor of Szamatowicz, and his insurer appealed. The court of appeals recognized that the crucial issue was whether the warehouse could be considered “premises used in connection with” Szamatowicz’s residence premises and therefore an insured location. The insurer argued that it could not, because the warehouse was at least twenty from Szamatowicz’s residence. The court, however, rejected that argument. The policy says nothing about geographical limits and so “there is no per se limit on distance.”

In the court’s view, “The warehouse provided a more appropriate area for an activity that normally would have taken place at his residence,” and therefore concluded that “Szamatowicz’s use of the warehouse on this occasion was ‘in connection with’ his residence.” Since the warehouse was an insured location, the court of appeals affirmed the trial court’s judgment in favor of coverage for Szamatowicz.

See Erie Ins. Exchange v. Szamatowicz, Court of Appeals of North Carolina. June 15, 2004 164 N.C.App. 748597 S.E.2d 136.

Mason v. Allstate Ins. Co.

On September 10, 2005, Werner and Deborah Kralick had a birthday party for their teenage daughter, Sarah, at a field about fifteen miles from their home. In the past, they had used that field, with the owner’s permission, to fish and hunt and to ride their ATV. At the birthday party, Sarah and another girl, Amy Stowers, were riding the ATV, Sarah lost control, and both girls were injured. The Kralicks’ insurer did not believe it was required to cover the injuries because they arose out of the use of a motor vehicle at a non-insured location. The trial court agreed, and Brick and Pam Mason—the parents of Amy Stowers—appealed that decision.

The issue before the court of appeals was whether the field was a “premises used by an insured person in connection with the residence premises.” The court cited a previous decision in which the court said that “approaches or easements of ingress to or egress from” the insured’s property would be “premises used … in connection with the residence premises,” but not “adjacent, non-owned land on which an ATV might be used.”

To the Masons’ argument that they were using the field for a birthday party they could not hold at the house and that it was therefore being “used in connection with” their home, the court responded: “Applying that logic would extend the policy’s definition of ‘insured premises’ to cover almost any family outing or celebration at almost any location—a friend’s pool, a neighborhood school, a public or private lake or park, etc.—regardless of the distance from or any actual connection with the insureds’ residence. Nor could an insurer be expected to cover any and all activities at these locations: “How could any insurer possibly draft a policy that would anticipate each and every hobby, interest or future travel decision of each and every insured, weigh the risks thereof, and set premiums accordingly?”

In fact, said the court, “although the Masons contend that the birthday party was held ‘in connection with’ their home because they went to the party from the home and returned home afterward, the same can be said for any outing by any family member at any time.”

The court of appeals maintained the decision of the trial court. The insurer was not required to provide coverage for this accident.

See Mason v. Allstate Ins. Co., Court of Appeals of Georgia. June 12, 2009 298 Ga.App. 308680 S.E.2d 16809 FCDR 2048.

The two cases above—both involving birthday parties at locations other than the residence premises but with diametrically opposite rulings by the courts—provide one example of the challenges courts face and their different opinions on the meaning of this policy definition. The court in the Mason case above thought easements and access roads could be considered to fall under this category, but other courts explicitly deny that they do. In fact, the very examples that one court presents as valid are rejected by other courts.

The court in the Mason case also did not accept that the Kralicks’ repeated use of the field for various family activities was relevant, but other courts have seen repeated use as a significant factor, while in the Szamatowicz case, there was only one use. Some courts conclude that the insured must have a “legal interest” in the property, though the policy does not say so, and other courts deny it.

Some courts insist that the other premises must be “integral” to the residence premises, although the policy does not say so explicitly. Some courts focus on whether these other premises are “continuous” (touching) or “adjacent” (near) the residence premises, as if they see “in connection with” as referring to the properties—the two properties are touching or near, as in the Fontneau case above—whereas in the policy itself, grammatically, the phrase “in connection with” refers to the use of the property and not its location.

State Farm Fire and Cas. Co. v. MacDonald

David MacDonald and his friends, the Ellises, owned two ATVs, which they kept at MacDonald’s property. The Ellis’s daughter Heidi and some friends were riding them on the field adjacent to MacDonald’s land when two of the friends were in an accident resulting in the death of one of them. MacDonald’s insurer declined coverage because the motor vehicles were not being used on an insured location.

When the case eventually made its way to the Superior Court, the court noted that MacDonald often rode on that adjacent field with the permission of its owners and concluded that “MacDonald has used the adjacent field in connection with his residence premises.”

See State Farm Fire and Cas. Co. v. MacDonald, Superior Court of Pennsylvania. May 11, 2004 850 A.2d 7072004 PA Super 161. See also Allstate Ins. Co. v. Drumheller, United States Court of Appeals, Third Circuit. June 27, 2006 185 Fed.Appx. 1522006 WL 1749423, which arrived at the same conclusion as in the MacDonald case, based on repeated use. A dissenting judge insisted that the properties in question had to be adjacent, which he took to mean that they had to touch.

In some cases, courts have endeavored to determine if some place falls into this category in the policy’s definition, not by introducing anything outside the policy itself (e.g., frequency of use; proximity to the insured’s residence) but by looking at what is said about an “insured location” elsewhere in the property. If the policy elsewhere indicates that something must be true of any “insured location” for there to be coverage, then it must also be true of this particular category of “insured location.” If that thing is not true of the accident site, then the accident site cannot be an insured location and cannot fall into this category of insured location. In this way, without determining what places do fall into this category, a court can rule that some sites do not.

Arrowood Indemnity Co. v. King

In 2002, Pendleton King Jr., fourteen years old, was driving his parents’ ATV and using a rope to tow his friend, Conor McEntee, who was on a skateboard. They were on a dead-end section of road a short distance from the Kings’ home when McEntee let go of the rope, fell, and was severely injured. The King’s insurer declined coverage because the incident arose from the use of a motor vehicle and did not take place on an insured location.

When the case finally reached the Supreme Court of Connecticut, the court reviewed some of the various ways the homeowner’s policy’s definition of “insured location” has been interpreted, seeking to determine if a dead-end private road in a residential development could be considered an “insured location” because it is a “premises … used in connection with” the named insured’s residence. But the court did not believe it needed to rely on criteria outside the policy itself, criteria such as “repeated use,” “actual use,” “integral use,” or “foreseeable use.”

The homeowner’s policy uses the term “insured location” later on, when it deals with liability. For instance, medical expense coverage applies “to a person on the insured location with the permission of an insured.” That, said the court, implies that to be an insured location, the insured must have “the right to grant permission to a noninsured to enter that location.” It cannot, therefore, be a public space, “access to which cannot be contingent on the permission of any individual property owner.” Nor can it be a place that someone else has control over, someone else’s private property.

The court also pointed out that “the policy provides medical coverage for all invitees injured ‘on the insured location,’ regardless of whether the injury relates to the insured’s own activities or property maintenance.” But if the injury takes place in a non-insured location, there is medical coverage to third parties only if the insured is liable for the injury. The court concluded that the insured has a “heightened level of responsibility for the insured location” than he does for other locations, “such that a third party invitee injured on the insured location might reasonably look to the insured for payment of medical expenses simply because of where the injury occurred.” But that is not and cannot be true for a public space, such as a road, or of someone else’s private property.

The Kings did not own the road on which the injury took place. The homeowners association did. The Kings did not have any authority over the road, nor did they have a “heightened level of responsibility for the location.” The court concluded that the place where the accident occurred was not an insured location.

See Arrowood Indem. Co. v. King, Supreme Court of Connecticut. March 27, 2012 304 Conn. 17939 A.3d 712.

(d) Any part of a premises not owned by an insured and where an insured is temporarily residing: Category (d) is distinct from the previous categories in several ways. First, it explicitly states that the premises in view are “not owned by an insured.” It does not state anything about the arrangements whereby the insured is residing at these premises. He could be renting them, but he could also be staying there as a guest. Second, unlike the previous categories, it deals with “an insured”—that is, any insured—and not only a named insured. While categories (b) and (c) were speaking about premised used by “you” (the named insured or a resident spouse), category (d) applies more broadly. The place where, for instance, the named insured’s mother-in-law, who lives with the named insured, is temporarily residing would fall into this category. Third, unlike categories (a) and (b), category (d) explicitly states that the residence in view is only temporary. The location in view here is not another home, a place where an insured intends to stay indefinitely.

Category (d) might include a hotel room, though some questions might arise about whether the hotel’s swimming pool, weight room, laundry facilities, parking lot, or outdoor seating areas for guests are included in the hotel room’s premises in the same way that other structures and grounds are included in “residence premises.” It might include a cabin or beach house or campsite the named insured’s family rents for their vacation. It might include a college student’s dorm room, if the student is an insured under the policy, or even, perhaps, the part of the army barracks someone stays in during basic training.

Courts sometimes have to rule whether a location is really a “temporary residence” and sometimes have come to different understandings of what the word “temporary” entails when it is attached to the word “residence.” In some cases, courts have relied on dictionaries such as Merriam-Webster’s Collegiate Dictionary (11^th ed., 2007), which defines “reside” to mean “to dwell permanently or continuously” and residence” as “the place where one actually lives as distinguished from one’s domicile or a place of temporary sojourn.” But if a residence is defined in such a way that it’s not “a place of temporary sojourn” and if “reside” implies permanence, what then is a “temporary residence”? Other courts have noted that the policy has not defined the terms “temporary” or “residence” and that therefore any place an insured lives for a time could be considered a temporary residence.

Farmers Union Mut. Ins. Co. v. Decker,

When Jamie Iverson was injured while riding Gerald Decker’s motorcycle on Decker’s farm, Decker’s insurer denied coverage. One of the insurer’s grounds for doing so was that Decker’s policy required a motor vehicle to be used exclusively on the insured location, and Decker had once used the motorcycle at a resort where he had camped.

Decker argued that the resort was a location in which he temporarily resided and therefore was an insured location. The trial court did not accept this argument, nor did the Supreme Court of North Dakota. It recognized that the policy did not define what it meant by “temporarily reside,” but pointed to a dictionary definition: “reside” means “dwell permanently or for a considerable time.” If that’s what “reside” means, said the court, then “temporarily reside” must mean something longer than a “brief one-time camping trip. If ‘temporarily reside’ were defined as Decker argues, any location an insured stayed overnight would become an ‘insured location.’ This interpretation defies common sense.”

Since the court did not view the resort as an insured location and since Decker did not use the motorcycle exclusively on an insured location, the court ruled that there was no coverage for the accident under his policy.

See Farmers Union Mut. Ins. Co. v. Decker, Supreme Court of North Dakota. October 18, 2005 704 N.W.2d 8572005 ND 173.

Goldberg v. Amco Ins. Co.

In October 2002, Rocco Cimarusti brought his dune buggy with him on his vacation at the Imperial Sand Dune Recreation Area (ISDRA). He bought a twelve-month permit and parked his trailer on one of ISDRA’s campsite pads. On the fourth day of his stay there, he was riding with two others in the dune buggy and crashed, injuring his passengers.

His insurer denied coverage. He was using a motor vehicle on a non-insured location. The trial court agreed; the court of appeals did not. It concluded that the accident happened on an insured location, namely, a location Cimarusti did not own but where he was “temporarily residing.”

The insurer argued that only the campsite was the “premises,” not the whole of ISDRA, but the court argued that premises include the grounds, by definition, and the grounds were ISDRA’s dunes. The court recognized that “reside” often means “to dwell permanently or continuously” (Merriam-Webster’s definition), but the policy had added the word “temporary,” thereby creating an ambiguity. “Temporary” is the opposite of “permanent”; it doesn’t imply any particular length of time.

Cimarusti’s policy covered vehicles “designed for recreational use off public roads,” and that’s what his dune buggy was. He had purchased the permit so that he could use his dune buggy off public roads, as the policy required. He parked his trailer at the campsite, intending to spend ten days there, and during the days he was there, he ate and slept there. The court concluded that “the only reasonable interpretation of the policy” was that Cimarusti was “temporarily residing” at ISDRA.

The court also pointed to another case, Hoff v. Minnesota Mutual Fire and Casualty, in which a court had concluded that on days when the plaintiff was staying at his cottage, he was “temporarily residing” there. He had the cottage year round and “temporarily resided” there when he came to stay for a while. So too, Cimarusti had rented the campsite for a twelve-month period and was “temporarily residing” there when he came to stay for a while.

Since the court saw the term “temporarily residing” as ambiguous and since Cimarusti could reasonably have expected the term to apply to the location where the accident occurred, the court judged in favor of coverage.

One judge, however, dissented. He pointed out that ISDRA is forty miles long and five miles wide. “No insured could reasonably believe that the approximately 200 square miles of sand dunes at ISDRA were ‘premises’ on which Cimarusti resided, temporarily or otherwise…. If he resided anywhere at ISDRA, it was at the Gecko Campground, not the vast stretch of physically distinct dunes. Nor did this judge think that “temporarily reside” covered a brief stay somewhere during a vacation.

See Goldberg v. Amco Ins. Co., Court of Appeal, Second District, Division 1, California. December 3, 2008 Not Reported in Cal.Rptr.3d 2008 WL 5076926.

Pacific Specialty Insurance Company v. Poirier

On June 25, 2016, Jason Mendoza and some friends camped in the Roosevelt National Forest in Bellvue, Colorado. Their intention was to camp there for one night. During the night, they were riding on Mendoza’s ATV when they had an accident two miles from the spot where they had set up their camp, resulting in injuries to Mendoza’s passengers, particularly Savanna Poirier.

Mendoza’s insurer noted that the accident arose from the use of a motor vehicle which, it said, was being used off an insured location, and therefore there was no coverage for it. Poirier and Mendoza argued that his campsite was his temporary residence and the accident occurred on the “premises,” namely, the Roosevelt National Forest. The District Court did not believe the phrase “where an insured is temporarily residing” has in view “a one-night campsite.” Even if the campsite was considered Mendoza’s “temporary residence,” the accident took place two miles away and it would not be reasonable to consider the insured premises as including the whole of the Roosevelt National Forest: “It is an absurd result to conclude that the ‘premises’ of a campsite includes the entire national forest surrounding it.”

See Pacific Specialty Insurance Company v. Poirier, United States District Court, D. Colorado. September 30, 2019 408 F.Supp.3d 1241.

Allstate Ins. Co. v. Stewart

In at least one case, though, a court ruled that a weekend stay at a relative’s home made that home the insured’s “temporary residence.”

Chris Eggermont, with her husband and three children, including her son Louis and her minor daughter Maria, spent a weekend at the home of James and Marilyn Stewart, Eggermont’s parents, while the Stewarts were away. Louis was operating a riding lawnmower and ran over Maria, severing her left leg. Eggermont sued the Stewarts for damages, alleging that the Stewarts and their caretaker were negligent in permitting Louis to use the lawnmower. The Stewarts filed counterclaims.

Eggermont’s insurer asked the court to declare that it did not have to defend her. The accident did not take place on an insured location. The trial court found in favor of the insurer and Eggermont appealed, arguing that she and her family were “temporarily living” at the Stewarts’ house. (In that policy, the phrase “temporarily living” was used, rather than “temporarily residing.”)

The appellate court noted that the Eggermonts spent Friday and Saturday night at the Stewarts’ house and made lunch on Sunday, engaging in “the various activities which are part of a family’s daily existence.” They didn’t intend to stay permanently, and so their stay was “temporary.” “Clearly, the Eggermonts were living in the Steward home on a temporary basis.” The court also noted that the policy spoke of “living” instead of “residence,” implying that living required something less than residence. For that weekend, the Stewarts’ house was where the Eggermonts were temporarily living and therefore was an insured location.The court therefore reversed the trial court’s decision.

See Allstate Ins. Co. v. Stewart, Appellate Court of Illinois, Second District. July 16, 1987 158 Ill.App.3d 129511 N.E.2d 188110 Ill.Dec. 353.

(e) Vacant land, other than farm land, owned by or rented to an “insured”: Land that is being used for farming requires a farmowners’ policy; it is not covered by a homeowner’s policy. But other vacant land that an insured—and not just the named insured—owns or rents is considered an “insured location.” Your neighbor’s empty lot does not fall into this category, even if the neighbor allows you to cross it, because it is not land that you own or rent.

The two issues that have had to be addressed by courts are the definition of the word “vacant” and the definition of “farm land.” The word “vacant” means “unoccupied.” By itself, “unoccupied” could mean that no one is living on that land, but courts generally go further and understand vacant land to mean land that does not have any buildings or permanent structures on it, even if they are not being used at the time. After all, an old abandoned house could be a fire hazard. If someone were to enter it, the floor could collapse, causing injury. Insurers and courts recognize the higher risk such a building entails, and so they generally limit “vacant land” to land without buildings and man-made structures.

Cotton States Mut. Ins. Co. v. Smelcer

Mr. Smelcer owned a home and had a homeowner’s policy that applied to it. Together with some other family members, he also owned a piece of land a few miles from his home that had his maternal family’s abandoned old house and an abandoned old country store on it. Vandals set fire to the house and a fireman was killed while fighting the fire. When the fireman’s father sued Smelcer, he turned to his insurer and claimed coverage. His insurer, however, sought a declaratory judgment from the court as to whether there was coverage for this accident.

The insurer argued that, while vacant land that an insured owns is an insured location under the policy, Smelcer’s land was not vacant because it had a house and a store on it. Smelcer, in response, said that he had understood “vacant land” to be land that was not occupied or used. The trial court concluded that the term “vacant land” was ambiguous and denied the insurer’s motion.

The insurer appealed, and the court of appeals reversed the trial court’s decision. It cited an earlier case in that jurisdiction that defined “vacant” as “empty or deprived of contents or without inanimate objects.” In addition, it said, “The presence of an affixed artificial structure on land, unoccupied, substantially alters the liability risk on the land,” as the fire in the abandoned home bore witness.

The court of appeals determined that the insurer was entitled to a summary judgment in its favor.

See Cotton States Mut. Ins. Co. v. Smelcer, Court of Appeals of Georgia. February 22, 1994 212 Ga.App. 376441 S.E.2d 78847 A.L.R.5th 939.

“Vacant” also is sometimes defined as “not put to use,” but that definition raises questions about the sort of “use” that is in view. The policy speaks of vacant land that someone rents, and it seems unlikely that anyone would pay rent for a piece of land that he is not going to use in any sense whatsoever. If an insured owns or rents a field with no buildings or structures on it and rides his ATV on it, is that a “use” that makes that field no longer “vacant”?

Some courts have identified “vacant land” as land that is unused but have then gone on to identify “use” as the sort of use that benefits the owner or renter financially. The question then becomes whether the insured is making a profit from his use of the land. But other courts have rejected this line of reasoning. The issue is not whether the insured benefits financially from the land. It is possible, in fact, to receive payment for not developing or farming a piece of property. Nor is there any justification in the policy to limit “use” to financially beneficial use. Riding an ATV on property is using property and the insured can be said to receive a benefit—enjoyment—from doing so. But the policy itself does not bring up or address use at all. In speaking of vacant land, it is addressing strictly whether or not the land has structures on it that might pose an added risk that the insured and the insurer should take into account.

American Family Mut. Ins. Co. v. Page

Robert and Marguerite Chicoine owned two homes, as well as a 97-acre property in Hanover Township, Illinois. They had homeowner’s policies on their homes, but neither policy mentioned the Hanover property. Both policies, however, included vacant land owned by the Chicoines as an insured location.

On July 20, 2002, Mylynda Page and the Chicoines’ daughter Nicole were riding an ATV on the Hanover property when Page was injured. The Chicoines’ insurers—for both their houses—filed a motion for a summary judgment from the court that they were not required to provide coverage because the land was not vacant. The land was zoned as farm land and assessed for property taxes as farm land. When Robert Chicoine purchased it, he tore down the old decrepit barn that was on it and built a new barn, which he used to store his ATVs, a car, and a tractor/mower.

In addition, Robert allowed his neighbor to harvest wild alfalfa that was growing on the land, though he did not charge the neighbor for it. Robert was not a farmer, but his tax returns included farm profit and loss forms relating to the property, he claimed his mortgage payments as tax deductions for “farm loss,” and he received government payments for refraining from growing certain crops.

The trial court found in favor of the insurers, concluding that the land was not vacant and that even if it was vacant, it was farm land and therefore not an insured location. Page and the Chicoines appealed. The court first considered the meaning of the phrase “vacant land.” Their conclusion was that vacant land refers to land that contains no man-made structures or buildings.

They noted that in a significant case, DeLisa v. Amica Mutual Insurance (1977), the court concluded that land that had a structure on it was nevertheless vacant because it was not being used, with “used” defined narrowly to refer to use that materially (financially) benefited the owner. The court dealing with the Page and Chicoine case rejected this holding: “The important inquiry focuses on the nature of the land and the objects upon it, not the way in which the land is used.”

Furthermore, if use is the issue, there is no reason to limit it to use by the owners, let alone financially profitable use. “The motive for building structures on a piece of land has no effect on whether those structures render the land non-vacant. Indeed, a property owner may place several buildings on a piece of land without any intention of deriving economic benefit from them.” It is also possible to benefit financially without building structures or using the land. In the case of the Chicoines, Robert Chicoine used “his ownership of a property for favorable tax treatment.” Land can “hardly be considered non-vacant simply because it produced profit for the landowner.” The issue to focus on, said the court, is whether there are any structures on the property.

The Chicoines had a barn on the property and therefore the court of appeals concluded that the property was not vacant. In opposition to that conclusion, Page and the Chicoines argued that the term “vacant” is ambiguous. “Farm land” is a subcategory of “vacant land” and farms do have buildings on them. The court was unpersuaded: Some farm property has buildings on it, but not all does.

Page and the Choines argued that “vacant” really has to do with whether the land is “habitable” and the Hanover property was not. The court was unpersuaded. A house may be habitable or uninhabitable, but the policy is speaking of land, not houses.

The Chicoines argued that their property was not used in a way that benefited them financially. The court was unpersuaded. Use was not the issue; structures on the property was. Furthermore, the Chicoines did use the property, both for storing and for riding their ATVs.

Page argued that the accident took place away from the buildings. The purpose of the provision is to protect insurers against risk posed by buildings, but buildings were not involved in this accident and so that purpose is not served by denying coverage. The court responded that the purpose of the provision was to “define the scope of the Chicoines’ insurance coverage” and the court’s job is to enforce the terms of the contract.

The Chicoines also pointed out that their policy stated that an insured location includes vacant “land on which a one or two family dwelling is being built for the personal use of an insured,” and therefore the policy must not mean to exclude land that has a building on it. The court responded that the policy’s inclusion of land with a dwelling under construction did not imply that vacant land in general could include buildings. Rather, “it indicates that land with a dwelling under construction may be covered as if it were vacant land, even though it otherwise would not be.”

The court agreed with the trial court that the Chicoines’ land was not vacant and therefore was not an insured property. Since it came to that conclusion, based on the presence of buildings on the land, it did not go on to discuss whether it was farm land.

See American Family Mut. Ins. Co. v. Page, Appellate Court of Illinois, Second District. July 11, 2006 366 Ill.App.3d 1112852 N.E.2d 874304 Ill.Dec. 418.

The other issue that courts sometimes have to address is whether vacant land is actually farm land. Farm land requires a farmowners’ policy and is not covered by a homeowner’s policy. But whether something is farm land is not always clear. In the Page case above, the trial court regarded the field as farm land, in part because the owner had allowed his neighbor to harvest wild alfalfa that was growing in the field.

It is possible for a field to have been farm land and yet not to have been farmed for years. While a court would not likely consider a field that was farmed last year and left uncultivated this year as “vacant land,” it might be more likely to if the field was left dormant for a several years, especially if the person who owned the field never used it as farm land. It would probably be wisest for an insured to consult his insurer about such a field to make sure that it is covered by his policy.

In some cases, questions have been raised about whether “farm land” refers strictly to land used to raise crops or whether it includes pasture land for animals. It is not only ranches that require land for cattle to graze. Even someone who lives in town might have a vacant lot next to his house where his mini Jersey cow grazes, which could raise questions about whether that lot is being used as farm land.

State Auto Property & Cas. v. Lewis

Joey Lowe was riding a motorcycle on Auburn Road in Shawnee County, Kansas, ran into a cow that had escaped from its pasture, and was killed. The cow belonged to Shirley Bosworth but was supposed to be on a pasture owned by David Lewis and Michelle Koelling in Topeka. Lewis’s insurer sought a summary judgment from the court determining that there was no coverage for this accident under Lewis’s homeowner’s policy.

The court found that the pasture was not vacant land: “It was not empty, deprived of contents, had substantial utility, and was not in its natural state. The land had been improved by permanent fencing and a steel gate, and was used for pasturing livestock.” Furthermore, the land was not unoccupied; it was occupied by Bosworth’s cattle.

The court also ruled the pasture was farm land and therefore not an insured location under the homeowner’s policy Lewis and Koelling argued that, according to a Kansas statute, “farmland” is “land devoted primarily to an agricultural activity” and “agricultural activity” is “the growing or raising of horticultural and agricultural crops, hay, poultry, and livestock, and livestock, poultry, and dairy products for commercial purposes.” Since Bosworth was not raising cattle for a commercial purpose, they argued, she was not engaged in an “agricultural activity” and therefore the land was not “farmland,” by definition.

The court did not find the argument persuasive. The insurer cited another Kansas statute that spoke of “land devoted to agricultural use” without reference to any commercial purpose. But the court set aside the “highly specialized statutory declarations cited by the parties” in favor of the “common dictionary understandings,” pointing out that Webster’s Dictionary defines “farmland” as “land used or suitable for farming,” “farming” as “the practice of agriculture,” and “agriculture” as “the science or art of cultivating the soil, harvesting crops, and raising livestock.” “Pasture” and “farm land” are often used interchangeably in other Kansas court decisions, or in such a way that “pasture” is a type of “farm land.” Moreover, “courts have consistently held that ‘farm’ is understood to include” the raising of livestock. The only time the raising of animals has not been regarded as farming, said the court, is when the animals were not domestic. A mink ranch is not considered a farm, but a cattle ranch would be.

The court therefore concluded that the pasture was not vacant land and that, even if it was vacant land, it was farm land. Since it was not an insured location, there was no coverage for liability relating to Lowe’s death.

See State Auto Property & Cas. v. Lewis, United States District Court, D. Kansas. March 19, 2014 8 F. Supp.3d 1303.

(f) Land owned by or rented to an “insured” on which a one-, two-, three- or four-family dwelling is being built as a residence for an “insured”: While the homeowner’s policy covers the named insured’s residence premises, it also covers land that an insured—not necessarily the named insured—owns or rents on which a dwelling is being built as a residence for an insured—again, not necessarily the named insured, but also not necessarily the insured who owns or rents the land.

So long as someone who is an insured under the policy owns or rents the land, the dwelling in view is only a one- to four-family dwelling, it is being built, and it is being built as a residence for someone who is an insured under the policy, it is considered an insured location.

Suppose Mrs. Parkin has a homeowner’s policy on her residence, which she shares with her adult son. He intends to move out and with that goal in mind has purchased some land. If the land is vacant—with no structures on it—and not farm land, it would qualify as an insured location under category (e), dealt with above. But if he has a construction company start building his house on that land, the land is no longer vacant—there is now a man-made structure on it—but it is still considered an insured location. Of course, if he moves into the completed home, he will no longer be an insured under his mother’s policy; the land will no longer be an insured location under her policy; and he will need to get his own homeowner’s policy.

Since the policy speaks of a one-, two-, three- or four-family dwelling as does category (b) and since category (b) says that at least one of those units must be the insured’s residence, it is reasonable to conclude that the same holds true here. The policy does not require all the units to be a (future) residence for an insured; for the land to be an insured location, it is sufficient if only one of them is.

But it is the case that at least one of those units must be an insured’s future residence. Land on which a dwelling is being built that is intended to be rented out to someone other than an insured would not be an insured location. Nor would land on which an insured is having a house built with the intention of selling it.

When the policy speaks about land on which a dwelling is “being built,” it is natural to think of brand new construction—a vacant lot, perhaps, where the ground is cleared and a foundation is laid and bit by bit the new house is built. The policy does not, however, require the land in question to be vacant. Unlike in category (e), the land here could have other structures and buildings on it; all that is required is that it be owned or rented by an insured and that a dwelling is being built on it as a residence for an insured. And while we might naturally think of new construction, at least one court has ruled that a dwelling that is undergoing significant renovation—the addition of another story—is “being built” and that the land on which the dwelling is situated is therefore an insured location.

Tower Ins. Co. of New York v. Diaz

Segundo and Christina Diaz had purchased property that had a building on it but, before moving in, began to add a second floor to the building. When an accident occurred, their insurer sought a summary judgment from the court to declare that it had no duty to defend or indemnify them.

The insurer argued that when the policy speaks of land on which a dwelling is “being built,” it is speaking of a new dwelling. Renovation of an existing dwelling is not in view. The motion court did not agree. If the policy is read that way, said the court, it would “theoretically require an insured to tear down an existing structure and rebuild it from scratch” in order to have any coverage. The court found in favor of the Diazes: the “addition of a second floor to the structure on the premises makes it land on which a one-family dwelling is being built.”

The insurer appealed, but the Supreme Court of New York upheld the motion court’s judgment: “We agree that the word ‘built’ encompasses the work being done here, i.e., the addition of a second floor to the building located on the property. In any event, to the extent that term is ambiguous, the ambiguity must be resolved in defendants’ favor.”

See Tower Ins. Co. of New York v. Diaz, Supreme Court, Appellate Division, First Department, New York. January 15, 2009 58 A.D.3d 495871 N.Y.S.2d 123 2009 N. Y. Slip Op. 00132.

(g) Individual or family cemetery plots or burial vaults of an “insured”: The policy includes the cemetery plots or burial vaults—whether for an individual or for a family—that belong, not necessarily to the named insured but to anyone who is an insured under the policy.

(h) Any part of a premises occasionally rented to an “insured” for other than “business” use: As with the categories above, “premises” includes buildings, structures, and grounds. A temporary residence that an insured rents would be an insured location under category (d), but category (h) includes residences as well as premises that are not residences, so long as they are not used for business.

For example, an insured—it need not be the named insured—may rent a cabin by the lake for the summer. That cabin might be considered a temporary residence. But the insured might also rent a boat house for his jet ski and his rowboat whenever he stays at the lake, and that boat house would fall under category (h). According to various dictionaries, the word “occasionally” means “now and then, at times, from time to time, once in a while, on occasion,” although “occasional” means “relating to a particular occasion.” A wedding is a particular occasion. If a couple rents a hall for their daughter’s wedding, that would be an “occasional” rental of a premises—a rental for a special occasion—and those premises might fall into category (h).

On the other hand, consider the two cases of a birthday party in the discussion of category (c) above: In the one case, a man subleased a warehouse for the party and it was considered by the court to be an insured location, but in the other case, a family used—but did not rent—a friend’s field for a birthday party and it was not considered by the court to be an insured location. A birthday party, no less than a wedding, is an occasion and yet in neither case did the insureds appeal to category (h)—occasional rental—to support their argument that their birthday party site was an insured location. One question that may arise, then, is whether a premises can be said to be rented “occasionally” if it is for a one-time event, such as a birthday party or wedding, or whether “occasionally” implies that the premises are rented more than once, “from time to time, every now and then.” An insured’s one-time rental of a hotel room in Las Vegas would probably not be viewed by the court as falling under category (h), whereas an insured’s rental of a cabin at the lake most summers would likely be.

On the other hand, the policy later on says that an exclusion does not apply to the rental of an insured location “on an occasional basis” (2.2-E2b1a). “On an occasional basis” and “occasionally” are virtually interchangeable terms. While “on an occasional basis” does rule out the long-term rental of a property, it surely does not rule out a one-time rental. In other words, if Mrs. LeBleu rents out her home while she is on vacation and does so only once, she is not doing so “from time to time” or “once in a while,” but she is surely doing so “on an occasional basis,” so that the exception to the exclusion applies. By that argument, it would seem, the term “occasionally” in category (h) could apply to a one-time rental of a premises. Sometimes, “occasional” is defined as “occurring or appearing at irregular or infrequent intervals” (Webster’s New Collegiate Dictionary [1981]), so that “occasionally” is the opposite of “regularly.” But if Mr. Jordan rents a cabin and a boathouse for his family’s vacation every year for the second week of August, that regularity would not likely be taken to mean that he was not renting these premises “occasionally” for the purposes of this policy. The rentals are short-term, not ongoing; there is no long-term lease. Long-term rentals, however, are not viewed by the courts as “occasional.”

Hess v. Liberty Mut. Ins. Co.

David and Sydelle Hess lived in an apartment building, and their daughter, Donna, lived in another apartment in the same building with a lease signed by her and her father. There was a fire in her apartment, allegedly caused by her negligence. The building’s insurer filed suit against Donna and David, and Donna and David sought coverage under David’s homeowner’s policy. David’s insurer, however, moved for a summary judgment because its coverage was for David’s specific insured locations and Donna’s apartment was not one of them. The trial court found in favor of the insurer, but the Hesses appealed, arguing that the summary judgment was wrongly granted because there was a question of whether Donna’s apartment fell into category (h) of the policy’s definition of an “insured location.” They argued, as well, that “occasionally rented” is not defined and is ambiguous. The court of appeal disagreed. “The reasonable, practical and sensible interpretation of the language ‘any part of a premises occasionally rented to any insured for other than business purposes’ does not refer to the situation where a father co-signs a one year lease for his daughter. Rather it refers to rentals occurring now and then, such as vacation rentals.” The court of appeal affirmed the trial court’s decision, finding in favor of the insurer.

See Hess v. Liberty Mut. Ins. Co., District Court of Appeal of Florida, Third District. October 30, 1984 458 So.2d 71.

Section 10: “Motor Vehicle”

The homeowner’s policy has already addressed motor vehicles briefly in the first definition, which dealt with motor vehicle liability. There, it said simply “Motor vehicle means a ‘motor vehicle’ as defined in 7. below.” Now we come to that definition of “motor vehicle”:

7. “Motor vehicle” means:

a. A self-propelled land or amphibious vehicle; or

b. Any trailer or semi-trailer which is being carried on, towed by or hitched for towing by a vehicle described in a. above.

What: The policy defines a motor vehicle as a vehicle that is propelled by itself—that is, by its own motor—regardless of whether it travels exclusively on land or can also travel through water. It also includes trailers that are being moved by such a vehicle.

The policy’s definition of a motor vehicle applies to more than just cars or trucks, vehicles that drive on a public road. It includes any vehicle—whether limited to the land or able to travel on water as well (“amphibious”)—that is “self-propelled,” that is, that has a motor that causes it to move.

A horse-drawn wagon, of course, would not be a motor vehicle, nor would a bicycle, since both are propelled by something other than the vehicle’s own motor. Cars and trucks certainly have motors, but so do motorized scooters, electric wheelchairs, snowmobiles, golf carts, riding lawnmowers, Segways, forklifts, tractors, dirt bikes, all-terrain vehicles or quads, go-karts if they have a motor, and even some children’s toys that kids can ride on. In some states, mopeds and electric bicycles are regarded as motor vehicles because they have motors. In other states, such as Florida, they are considered bicycles, presumably because they are not completely self-propelled.

District Court of Appeal of Florida, Fourth District

Cleosta and Jerlene Lane’s son was riding a moped on the street and ran into a pedestrian, who sued the Lanes for her injuries. The Lanes’ insurer, however, saw no obligation to provide them with coverage. Their policy said “We do not cover bodily injury or property damage arising out of the ownership, maintenance, use, loading or unloading of any motorized land vehicle.”

The Lanes sued their insurer in the hope that the court would rule that a moped is not a motorized land vehicle. The moped in question was “propelled by a pedal-activated helper motor with a manufacturer’s certified maximum rating of no more than 1½ brake horsepower.” The trial court ruled that the moped was in fact a motorized land vehicle and hence excluded from coverage. The Lanes appealed, pointing out that for purposes of licensing, registration, traffic control, and insurance mopeds have been held to be bicycles. They argued that the term “motorized land vehicle” is ambiguous when applied to a moped.

The trial court agreed, citing other similar decisions as well as the fact that the Florida legislature had defined mopeds as bicycles at the time the policy was issued—and the homeowner’s policy itself said, “When the policy provisions are in conflict with the statutes of the state in which the residence premises are located, the provisions are amended to conform to such statutes.” The state viewed mopeds as bicycles, not motorized vehicles, and the policy did not explicitly exclude or address mopeds. The court pointed out, as well, that the policy spoke of “self-propelled” vehicles, whereas the moped was “propelled by a pedal-activated helper motor.”

See District Court of Appeal of Florida, Fourth District. July 10, 1985 473 So.2d 82310 Fla. L. Weekly 1679.

The policy’s definition of a motor vehicle includes more than just the self-propelled, motorized vehicle itself. For the purposes of this policy, it also includes “any trailer or semi-trailer which is being carried on, towed by or hitched for towing by” any of these motor vehicles. The trailer doesn’t have a motor and isn’t a motor vehicle, but it is included anyway. The policy includes three possible configurations between the trailer and the motor vehicle: it could be carried on the vehicle, towed by it, or just hitched up to be towed by it.

Key Takeaway: A “motor vehicle” under the policy is self-propelled, not driven by wind or muscle, but by a motor. But the policy also includes in this category trailers that do not themselves have motors but are attached in some way to a motor vehicle.

Pioneer State Mutual Ins. Co. v. Dells

On October 28, 2009, Thomas Dells was driving his van eastbound on a road in Kent County, Michigan, and was towing a utility trailer full of scrap metal. Toni Hall was driving westbound on the same road. As the vehicles approached each other, the hitch separated from the van so that the trailer came loose, bounced into the air, and landed on Hall’s windshield, impaling and killing her.

Dells’ auto policy covered the liability up to its policy limits. Dells, as well as Hall’s estate, expected his homeowner’s policy to provide further coverage. The insurer, however, pointed out that the policy excluded coverage for bodily injury arising out of the use of a motor vehicle.

The estate argued that there should be coverage under the policy because the exclusion has an exception: “This exclusion does not apply to a trailer not towed by or carried on a motorized land conveyance.” At the time of the accident, the trailer was no longer being towed, the estate said, and therefore this exception should apply.

Neither the trial court nor the court of appeals agreed. The injury and death arose from the use of Dells’s van, without which the trailer would never have hit Hall’s vehicle. Furthermore, her death arose from the towing of the trailer, without which the accident would never have happened. Finally, the exception to the exclusion was never meant to apply to trailers that break free when being towed; rather, it was intended to apply to trailers that are parked. The courts ruled, therefore, that Dells’s homeowner’s policy did not provide coverage for this accident.

See Pioneer State Mutual Ins. Co. v. Dells, Court of Appeals of Michigan. June 18, 2013 301 Mich.App. 368836 N.W.2d 257.

Section 11: “Occurrence”

8. “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period, in:

a. “Bodily injury”; or

b. “Property damage”.

What: The policy defines an occurrence as an accident that results in bodily injury and/or property damage. An accident, under the policy’s definition, is not just a sudden event that happens at one particular time. It also includes continuous (ongoing) or repeated (from time to time) exposure to certain harmful conditions—not necessarily exactly the same conditions, but substantially the same—that, over time, results in bodily injury or property damage.

In normal usage, the word “occurrence” means “something that occurs,” that is, “something that happens, something that takes place.” But in the homeowner’s policy, an occurrence is particularly an event that takes place involving (alleged) liability on the part of an insured for which the insurer may have to defend the insured and compensate for any damages that are imposed upon the insured. The word “occurrence” shows up frequently in the Liability section of the policy, but it is defined here. “Occurrence,” the policy says, “means an accident … which results … in bodily injury or property damage.” “Bodily injury” is defined above (Definition 2) and “property damage” is defined below (Definition 9). The term “accident,” however, is not defined in the policy. Courts therefore rely on dictionaries to help determine what this word means in the context of the insurance policy and particularly what an ordinary person would take it to mean.

Black’s Law Dictionary (online edition: https://thelawdictionary.org/accident/) defines an accident as “an unforeseeable and unexpected turn of events that causes loss in value, injury, and increased liabilities. The event is not deliberately caused and is not inevitable.” The definition mentions the negative effect of the event (“loss in value, injury, and increased liabilities”)—an event that has positive results is not considered an accident—but in particular it specifies that the event was not expected, that it was not something someone could have foreseen, that it was not deliberately caused, and that it was avoidable and unnecessary (i.e., if something was going to happen no matter what, it is not considered an accident). Think of a motor vehicle accident. If you are driving with due care on the highway, it is certainly possible that you could have an accident but it is not something that you can foresee nor is it something you expect to happen. You are not deliberately causing an accident, an accident is not necessary, and it is not certain to happen no matter what.

For an accident to happen as you are driving, something unexpected and unplanned has to happen. Something has to go wrong—whether it is a failure on your part, a mechanical breakdown in the car, a blowout of a tire, hydroplaning on a patch of water or skidding on ice, careless driving on the part of someone else, or whatever. If you deliberately run into someone else’s car, however, that collision is foreseeable, expected, and deliberately caused and would not be considered an accident.

But courts do not rely solely on legal dictionaries; they want to see how ordinary people define words. Merriam-Webster’s online dictionary (https://www.merriam-webster.com/dictionary/accident) defines “accident” as “an unforeseen and unplanned event or circumstance; lack of intention or necessity” and then adds, secondarily, “an unfortunate event resulting from carelessness or ignorance.” Here, too, an accident is something unforeseen—not something that anyone could have expected to happen—and unplanned. An accident is not necessary; it is not something that would happen no matter what. And an accident comes about with a “lack of intention,” which could include “carelessness or ignorance.”

It is important to recognize that an accident is not an event that happens for no reason whatsoever. As we saw above, an automobile accident may take place for any number of reasons or even a combination of reasons. An accident may result from a person’s carelessness. Contrary to the definition used by the Associated Press (https://www.merriam-webster.com/words-at-play/what-is-an-accident), in the homeowner’s policy the word “accident” does not mean that no one is responsible; an accident can result from a person’s negligence or carelessness. But an accident is something that is unexpected, unnecessary, unforeseen, unplanned, and unintentional.

If you intend to cause the injury or damage or deliberately do something that you could foresee would cause injury or damage, it is not an accident. If you are cleaning your handgun, thinking it is unloaded, and it fires and injures someone or causes property damage, that is an accident. It is unexpected and not deliberate. On the other hand, if you are in the middle of a hostile dispute with someone and you pull out a loaded handgun and fire it at him, any injury that results is certainly foreseeable. You might protest that you did not intend to hurt him—let alone to kill him—and that your subjective intention was only to scare him. But the court, unable to read your mind at the time of the incident and evaluating your intent on the basis of your actions and what you could have expected to result from them (sometimes called “inferred intent”), would likely draw the conclusion that the injury was not the result of an accident.

It is possible that you did not deliberately point the gun and pull the trigger, but that it went off as you were waving it around in a threatening way, but it is foreseeable that a loaded gun being waved around in order to threaten someone could go off and cause damage or injury. It is easy to say “I didn’t mean to” after something bad has happened, but what the court considers is whether you could foresee or reasonably expect that your actions were likely to cause the sort of damage or injury they did. Similarly, if there is a problem with the wiring in your house and a fire starts, that is an accident. If something goes wrong while you are cooking and there is a fire in your frying pan and as you are trying to put it out, some of the burning oil splashes on a guest, that fire and the resulting bodily injury is an accident.

But arson is deliberate and intentional; it is not an accident. If you pour lighter fluid onto the towels in your linen closet and drop a lit match onto them in order to start a fire, you may not intend to burn down the whole house. You may not intend to harm anyone. But the starting of the fire was deliberate and intentional and you could reasonably expect that it would result in damage. In fact, because fire is hard to control, it could reasonably be expected to result in more damage than you intended—for instance, to the death of a fireman who is trying to put it out or to damage to other houses besides your own.

Key Takeaway: For an incident to be an “occurrence” under the policy, it must be an “accident.” That does not mean that it must happen by chance, for no reason whatsoever. Rather, it means that the bodily injury or property damage that occurred was unexpected, unnecessary, unforeseen, unplanned, and unintentional on the part of the insured. If the insured intended to do something that a reasonable person could foresee would cause injury or damage, that action is not considered an “accident” and therefore is not an “occurrence.”

Nabozny v. Burkhardt

On April 8, 1994, a number of high school students were at a gravel pit in Clyde Township in Michigan, including John Nabozny and Kevin Burkhardt, both of whom were underage and drinking. Burkhardt tried to pick a fight with Nabozny, who refused to fight. Burkhardt grabbed Nabozny and tripped him “to get him down to the ground so I could have the advantage,” and in that process, Nabozny’s ankle was broken.

Burkhardt’s parents’ insurer refused to defend him because the tripping of Nabozny was intentional and therefore not an accident. The trial court found in favor of coverage for Nabozny’s injuries. When the insurer appealed, the court of appeals upheld the trial court’s decision: “While Burkhardt certainly engaged in intentional conduct when he initiated the fight with plaintiff, the evidence contradicts a finding that he intended to harm plaintiff, or even that harm to plaintiff was anticipated or naturally expected as a result of his conduct.”

The insurer appealed once more and the Supreme Court of Michigan examined the case. When the court discussed the tricky question of unintended results of intentional actions, it made reference to decisions it had made in other cases.

In one, the court had said that what determined whether consequences of an intentional act were an accident or not was whether they were either “intended by the insured or reasonably should have been expected because of the direct risk of harm intentionally created by the insured’s actions…. When an insured’s intentional actions create a direct risk of harm, there can be no liability coverage for any resulting damage or injury, despite the lack of an actual intent to damage or injure” (Auto Club Group Ins. Co. v. Marzonie, 447 Mich. 624, 527 N.W.2d 760 [1994]).

In the other case, where clothing store owners set a fire intending only—by their testimony—to cause smoke that damaged their clothing but the fire damaged their building as well as neighboring buildings, the court had applied that test and concluded that the setting of the fire was intentional and that the intent was to damage property and therefore the fire was not an accident and so was not an “occurrence” for which the insurer had to provide coverage. (See Frankenmuth Mut. Ins. Co. v. Masters, 460 Mich. 105, 595 N.W.2d 832 [1999].)

Furthermore, the court considered a dissenting judge’s statement from another earlier case: “Where a direct risk of harm is intentionally created, and property damage or personal injury results, there is no liability coverage even if the specific result was unintended. It is irrelevant that the character of the harm that actually results is different from the character of the harm intended by the insured” (Frankenmuth Mut. Ins. Co. v. Piccard, 440 Mich. 539, 489 N.W.2d 422 [1992]).

In the case of Burkhardt and Nabozny, the court viewed the incident from the perspective of the insured, Burkhardt. The court granted that Burkhardt had not intended to break Nabozny’s ankle. “However, it is plain that in tripping someone to the ground in the course of a fight, Mr. Burkhardt reasonably should have expected the consequences of his acts because of the direct risk of harm created.”

The tripping was intentional, the direct risk of injury—if not a broken ankle, then something else—was created by that intentional act, and therefore the injury was not an accident, the event was not an “occurrence” as defined by the policy, and there was no liability coverage for Burkhardt for Nabozny’s injury.

See Nabozny v. Burkhardt, Supreme Court of Michigan. March 7, 2000 461 Mich. 471606 N.W.2d 639.

Some courts, however, have ruled that certain unintended consequences of intentional actions are accidents, especially if they are consequences of a different nature than the person intended. For instance, starting a fire to burn furniture in a room might result in the house itself catching fire, a consequence beyond what was intended but still property damage. But such a fire might also lead to the injury or death of a fireman who has come to put it out, and that would be a consequence of a very different nature than the person who set the fire intended.

Frankenmuth Mut. Ins. Co. v. Piccard

On February 16, 1984, Charles Piccard went to the business he owned, Towne & Country Music Store, to repair some instruments after the store was closed. According to his testimony, he was frustrated with various things in his life, and particularly his involvement with the music store. While he was working, he poured some flammable cleaning fluid onto a pad, plugged a soldering iron in, and left it on the pad in order to start a fire. The fire spread to the building and a fireman fell from the room and was injured as he was attempting to help put it out.

Piccard’s insurer denied coverage. The case eventually arrived at the Supreme Court of Michigan, which said that it had to determine whether the event was an “accident” or not by viewing it from the perspective of the injured person, not the insured. While Piccard intended to set the fire, the bodily injury happened when the fireman fell from the roof—and that, the court said, was an accident. The injury to the fireman was not expected or intended by Piccard, though he had intended to cause property damage. And so the court ruled that the injury to the fireman was an “accident” and therefore an “occurrence” under the policy, so that Piccard’s insurer did have the duty to defend him and provide coverage.

One judge, however, dissented: “The act of intentionally burning a business, specifically intending to cause property damage, is not an accident and, therefore, it cannot be an ‘occurrence’ for purposes of this insurance contract. The accidental nature of the fireman’s fall cannot convert the intentional act of the insured into an ‘accident.’ In the plain language of the contract, there is no coverage unless the injury was caused by an ‘occurrence,’ and an ‘occurrence’ must be an accident.”

The dissenting judge went on: “Where a direct risk of harm is intentionally created, and property damage or personal injury results, there is no liability coverage even if the specific result was unintended. It is irrelevant that the character of the harm that actually results is different from the character of the harm intended by the insured.”

“Suppose the fire had been started by a faulty electric cord on the insured’s coffeemaker. Examining the insured’s act for ‘intent,’ there is no doubt that he purposely plugged in the coffeemaker and turned on the switch. In that sense he acted intentionally. The fire remains an accident and the act constitutes an occurrence, however, because at the time of the insured’s purposeful act he had no intent to cause harm. The act of plugging in the coffeepot is not a sufficiently direct cause of the harm, and the fire in this example is an accident. Mr. Piccard, on the other hand, acted intentionally with the intent to cause property damage and, indirectly, any potential resulting personal injury; his actions were the direct cause of the condition that resulted in personal injury. His actions cannot constitute an occurrence.”

Between this case and the Nabozny case described above, the Supreme Court of Michigan came to agree with the dissenting judge.

See Frankenmuth Mut. Ins. Co. v. Piccard, 440 Mich. 539, 489 N.W.2d 422 [1992]).

State Farm Fire & Casualty Co. v. Superior Court, Court of Appeal

The cases presented above were both dealt with by the Supreme Court of Michigan, which changed its approach between the Piccard case and the Nabozny case. Other courts in other jurisdictions have adopted different approaches in their attempt to deal with unintended consequences of an insured’s intended action and have come to very different conclusions.

Joshua Wright and Jeffrey Lint were at a party at someone’s house and began to argue. Wright went outside, and Lint followed him, picked him up, and threw him into the shallow end of the swimming pool. According to his testimony, his intent was not to hurt Wright but to throw him into the water. It was “horseplay.” He did not throw Wright far enough, however, and Wright landed on the steps of the pool, breaking his clavicle.

Lint’s parents’ insurer declined coverage on the grounds that his action was deliberate, regardless of any intent to hurt Wright, and therefore was not an “occurrence” under the policy. The trial court disagreed, and the insurer appealed. The court of appeal cited numerous cases that determined the event was an “occurrence,” not on the basis of whether the insured acted deliberately, but on the basis of whether the injury was intended or expected—and in some cases, whether it was intended or expected by the person injured.

If the insured acted with the intent of causing injury, that would not be an accident. If he intended all the various acts that resulted in the injury, he might not have intended the injury itself but it would still likely not be called an accident. But if there was some aspect of the chain of events that was not intended, then it would be an accident. In this case, Lint made a mistake in calculating how much strength to exert in order to throw Wright far enough to get him into the pool. Not all the acts happened as Lint had planned, and therefore, the court said, what happened was in fact an accident and therefore an “occurrence,” under the policy.

The court also presented several examples to support its case. A baseball player intends to hit the ball, but it’s a foul ball and it flies off to the side and smashes a window. The hitting of the ball is intentional, but the property damage is not, and so what happened is an accident. A driver thinks it is safe to change lanes, does not see the car in his blind spot, and so intentionally changes lanes—but the collision that results is an accident, even though it arose from an intentional action, because there were other factors that the driver did not intend.

See State Farm Fire & Casualty Co. v. Superior Court, Court of Appeal, Second District, Division 3, California. June 26, 2008 164 Cal.App.4th 31778 Cal.Rptr.3d 828 08 Cal. Daily Op. Serv. 81562008 Daily Journal D.A.R. 9798.

The question has been raised whether intoxication impairs one’s ability to formulate an intention or to foresee possible consequences. If bodily injury or property damage results from something that an intoxicated person does, is that an accident and therefore an “occurrence” under the policy? Courts have taken intoxication into account—as the laws of some states require—and yet have been unwilling to conclude that intoxication, unless it leads to a blackout, necessarily impairs one’s ability to formulate an intention. It may, in fact, reduce inhibitions that would otherwise keep a person from carrying out his intention. Courts also take into consideration the insured’s actions and words while impaired. For instance, if he goes and gets a weapon, if he goes to someone’s house (and arrives at the correct house), if he states his intention to harm someone—these and other activities can be viewed as indicating that the insured had a clear intention despite intoxication. And as with the cases dealt with above, that a person does not intend his actions to have all the consequences they do does not mean that he didn’t intend his actions or that they are what the policy means by an “accident.”

State Farm Fire & Cas. Co. v. Estate of Mehlman

Thomas Mehlman began drinking at a restaurant in the afternoon of March 5, 2005. Witnesses said that he was visibly intoxicated and cognitively impaired. At about 4:30, he left the restaurant and walked a mile and a half to the home of his (former?) girlfriend, Phyllis Sauter. In his backpack was a .45 caliber handgun.

Sauter was not home and Mehlman let himself into the residence, where he encountered Maria Iacono, who rented a second floor suite. Mehlman demanded to see Sauter, Iacono told him she was in Colorado, and Mehlman became angrier and angrier. He refused to leave, so Iacono went outside and got into her car. Mehlman took out the handgun and followed. Iacono tried to flee but crashed into a tree. Mehlman fired repeatedly at Iacono, even lying on the hood of her car to aim at her head, but the gun misfired each time. At last, Iacono was able to drive away. Mehlman went back into Sauter’s house. Police arrived, but Mehlman had taken his life. His blood alcohol level, when his body was found, was 0.21 percent.

Iacono sued Mehlman’s estate. Mehlman’s insurer denied coverage, since his actions did not constitute an “occurrence” under his policy. The district court agreed, Iacono appealed, and the court of appeal took up the case. It recognized that “the dispute in this case centers on the question of whether Mehlman’s intoxication might have rendered conduct accidental even though it otherwise would be regarded as intentional.”

The court acknowledged that Pennsylvania’s law said that imbibed intoxicants must be considered in determining if the actor has the ability to formulate an intent.” But the court added that “alcoholic beverages certainly can contribute to the loosening of a person’s inhibitions without eliminating his ability to intend to engage in harmful conduct.”

While in some cases, various factors in addition to or resulting from the intoxication—e.g., the testimony of witnesses, other circumstances, the insured’s blackout—may make it possible that the intoxicated insured did not intend his actions, in Mehlman’s case these factors were not present. Mehlman was certainly drunk, but that did not stop him from walking—on the correct route—all the way to Sauter’s place. He attempted repeatedly to shoot Iacono and was able to fire the gun, indicating that “his intoxication had a limited impact on the use of his faculties. Unlike his gun, which was not functioning as it was intended to do when it misfired, Mehlman certainly was functioning precisely as he intended.”

The court added, “Pennsylvania courts will not lightly allow an insured to avoid the financial repercussions of an act of violence by drinking himself into insurance coverage.” Damages caused by shooting are exactly the sort of thing that insurers do not intend to cover under a homeowner’s policy—the very sort of thing that leads them to limit their coverage to “accident” and not to broaden it to include intentional harm.

See State Farm Fire & Cas. Co. v. Estate of Mehlman, United States Court of Appeals, Third Circuit. December 16, 2009 589 F.3d 105.

In some cases, it is possible to distinguish the action from the harm that results, so that it is possible to do the action without intending any sort of harm. If you chase someone around a swimming pool, your intent is not to make them slip and hurt themselves, though that may be the result of your behavior. In the case of any form of negligence, the person who is negligent is not intending to bring about injury or damage. But in the case of sexual molestation or assault, courts recognize that the action is the harm. It is not possible to say that you committed the act but did not intend to harm the victim. There is no such thing as “negligent sexual molestation” or “negligent sexual assault.”

Key Takeaway: There is no such thing as “negligent sexual molestation” or “negligent sexual assault.” The intent to do such things just is an “intent to harm”. Therefore, sexual assault or molestation are never “occurrences,” and liability for them is not covered by the homeowner’s policy.

When we think of an accident, we often think of something that happens suddenly or all at one time. A car changes lanes and there is a sudden collision. Bad wiring in a toaster starts a fire and all of a sudden there is a fire that gradually spreads to the whole house. But when the policy says that an “occurrence” is an “accident … which results … in bodily injury or property damage,” it adds something more: “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Unlike a fire that breaks out suddenly and engulfs the whole house in flames in a single day, other harmful conditions—such as mold, toxic chemicals, pollutants, seeping water—can be at work for a long time before anyone notices their health effects or the property damage they cause, let alone traces the problem back to its source.

The policy speaks of “continuous or repeated exposure.” That is, to be considered an “accident” under the policy, the exposure to these harmful conditions may be ongoing. Day-in, day-out exposure to certain molds can cause health problems. Or the exposure may be something that happens over and over again at various times or occasions. Poor drainage can cause water to seep into the house every time it rains—not continuously, but repeatedly—and result in damage to property. The policy also does not require these harmful conditions to be exactly the same. Rather, they must be “substantially the same general harmful conditions.” “Substantially” means “for the most part, to a large extent, mainly.” “General” is the opposite of “specific.” The policy does not require, for instance, that someone prove that a particular bodily injury is due to repeated exposure to exactly the same specific pollutant. If the insured is contaminating the groundwater, the neighbor who suffers because of it does not need to prove that the insured always contaminated the groundwater with a particular toxin, which the exact same chemical makeup.

For instance, suppose you have a street that slopes down slightly toward a river. When it rains heavily, water runs down the street, but it may also run down a stream it has made for itself through several houses’ backyards. If the owner of one of the homes builds a shed in his backyard, he may disrupt the flow of that stream so that the water no longer drains away from his uphill neighbor’s backyard as well as it used to and some water seeps into the neighbor’s basement, gradually rotting wood, damaging sheetrock, and causing mold to grow—which might, in turn, result in allergic reactions on the part of the neighbor’s child who has a bedroom in the basement.

Some time may pass before the neighbor becomes aware of his child’s health problems and of the damage to his property caused by the poor drainage. Eventually, though, he may and may bring a suit against his neighbor, in which case the neighbor’s insurer would be called upon to defend him for his alleged liability in this regard. The occurrence in question—the accident that allegedly caused bodily injury and property damage—would be the building of the shed that led to an exposure to substantially the same harmful conditions that was, in this case, both continuous (the slow growth of the mold) and repeated (seeping of water after every heavy rainfall).

Key Takeaway: An “accident,” as defined by the policy, need not be a sudden, all-at-one-time event. It can include continuous or repeated exposure to harmful conditions that can, over time, result in bodily injury, including sickness and death, or in property damage.

It is important to note that the policy specifies that the accident “results, during the policy period, in bodily injury or property damage.” The policy that applies to an occurrence is the policy in force when an occurrence results in bodily injury or property damage, not the policy in force when the accident took place.

Key Takeaway: The policy that applies to an occurrence is the policy in force when an accident results in bodily injury or property damage, not the policy in force when the accident itself took place. Sometimes these are virtually simultaneous. In other cases, damage may not occur—or may not become evident—until considerable time has passed.

Sometimes, of course, an incident takes place and the damage happens immediately or almost immediately. If you plug in the toaster with bad wiring, the fire doesn’t take years to start; it starts relatively quickly. Other sorts of accidents, however, do not result in injury or damage until some time later. In the example above, a long time may have passed between the insured’s building of the shed that diverted the original drainage so that rainwater began seeping into his neighbor’s basement and the neighbor’s awareness of the damage or the health issues that resulted from it. In fact, by that time, the insured may have sold that house and moved somewhere else.

The wording is designed to make it clear that the policy that applies to the occurrence is the homeowner’s policy in effect when the bodily injury or property damage occurred, which may not be the same policy that was in effect when the action that led to the injury or damage took place. In the case of exposure to harmful conditions, it is hard to say exactly when damage first took place or when a bodily injury—such as health problems due to exposure to mold—began. A court would date these things from the time that they were first detected.

Tacker v. American Family Mut. Ins. Co.

Kevin Duffy owned a home in Fort Dodge, Iowa. In 1978, while remodeling the family room, he wired and installed a new electrical outlet. He sold the home to Charlotte and Philip Tacker in 1984. In 1990, while he was using a “wet-vac” in the family room, Philip Taker was electrocuted. Charlotte Tacker filed suit against Duffy, alleging that Philip’s death was the result of Duffy’s negligent electrical work.

At the time of the accident, Duffy had a homeowner’s policy for his new home. His insurer argued that, even if Duffy had been negligent, the negligence did not take place during the policy period. Furthermore, the policy excluded from coverage any bodily injury “arising out of the ownership … of any premises other than an insured premises.” Since the Tackers’ home was not an “insured premises” under Duffy’s current policy, his insurer believed the exclusion applied.

The trial court rejected both arguments, Duffy appealed, and the court of appeals upheld the trial court’s judgment. Philip Tacker’s death did not arise out of Duffy’s ownership of the home; it arose—allegedly—out of Duffy’s negligent wiring of the electrical outlet. And Duffy’s current policy specified that there was coverage for bodily injury that happened during the policy period. “Occurrence policies provide coverage if the incident insured against occurs during the policy period. The time of ‘occurrence’ is when the claimant sustains damages, not when the act or omission causing the damage takes place.”

See Tacker v. American Family Mut. Ins. Co., Supreme Court of Iowa. April 26, 1995 530 N.W.2d 674.

Courts often confront questions about the number of actions and the number of occurrences. If you accidentally trip someone on your front step and she falls and fractures her wrist and a finger, that is one action with two bodily injuries, but the bodily injuries would not be treated as separate occurrences. But if a dog bites a child three times in rapid succession, are those three separate actions leading to three separate bodily injuries, so that the policy must cover each one up to its limit separately? Or is that whole complex of events only one occurrence, a dog-bite incident resulting in three injuries? Does it change things if the dog bites a child and then bites the parent who is trying to rescue the child?

Courts take various factors into consideration, but generally if there is a single cause that results in many injuries, courts regard it as one occurrence. A fire that leads to property damage and injury to a fireman is one occurrence, not two. But if there are distinct, separate acts that produce separate losses, they are regarded as separate occurrences. As well, if a bunch of things happen closely together, the whole complex of events is often viewed as a single occurrence. But different courts and different jurisdictions have drawn different conclusions.

Maddox v. Florida Farm Bureau General

Crystal Maddox and her two sons, Logan and Ivan, lived with her boyfriend, Robert Bullard. Bullard’s dog Dixie bit Ivan on the face. Bullard and Maddox tried to get Dixie to release her grip. When she did, she bit Maddox’s face and then bit Ivan again, before Maddox and Ivan could get to safety.

Bullard’s insurer provided coverage up to $100,000 per occurrence, which was paid to Ivan. Maddox filed suit for damages for the injuries she received, and Bullard’s insurer declined coverage on the grounds that the dog attack was one occurrence and that it had already paid up to its limit for that occurrence. A trial court agreed, and Maddox appealed.

The court of appeal agreed that the trial court should not have granted summary judgment in favor of the insurer. The provision in the policy, the court said, was ambiguous: “It is reasonable to construe the occurrence as the entire dog attack or as each separate dog bite.” Since ambiguities are resolved in favor of the insured and against the insurer, the court said the “occurrence” had to be taken to mean that “each separate dog bite that resulted in a separate injury to a separate victim was a separate occurrence.”

The court ruled, therefore, that Maddox was entitled to coverage under the policy. One judge dissented: “In my view, the dog attack was the sole ‘proximate, uninterrupted, and continuing cause which resulted in all of the injuries and damages’ to both Maddox and her son and, thus, constituted only one occurrence under the policy.”

He pointed to cases in which a motorist veered and the accident resulted in injuries to three motorcyclists and in which a truck collided with a train and damaged sixteen cars belonging to fourteen different owners—and both of those accidents were seen as one occurrence, though there were several instances of injury or damage. Here, too, he said, there was a single force—the dog—whose attack resulted in injuries to two people, Maddox and her son.

In addition, he noted that if the majority was correct in saying that “each uninterrupted dog attack on a separate victim constitutes an occurrence under this policy,” there would be three occurrences, not two. The dog, after all, bit Ivan. Then it bit Maddox. And then it bit Ivan again. The attack on Ivan was interrupted by an attack on Maddox. In other words, if this was not one uninterrupted dog attack with two victims and therefore one occurrence, then it was three attacks and three occurrences.

See Maddox v. Florida Farm Bureau General, District Court of Appeal of Florida, Fifth District. January 17, 2014 129 So.3d 117939 Fla. L. Weekly D162.

Section 12: “Property Damage”

8. “Property damage” means physical injury to, destruction of, or loss of use of tangible property.

What: The policy definition of “property damage” includes injury to that property, the more or less complete destruction of that property, and the owner’s loss of use of his property. What is in view is “tangible property,” property that can be touched and handled.

Throughout the policy, two kinds of injury or damage are spoken of, “bodily injury” and “property damage.” “Bodily injury” is a person’s bodily harm, sickness, or disease, and some consequences thereof. “Property damage” is physical harm or injury to “tangible property,” that is, to physical things that belong to someone. Both involve physicality. The basic distinction between them is that one has to do with persons and the other to do with things.

Three kinds of damage are mentioned in the policy: “physical injury,” “destruction,” and “loss of use.”

Black’s Law Dictionary (online: https://thelawdictionary.org/physical/) defines “physical” as “material, substantive, having an objective existence, as distinguished from imaginary or fictitious.” Merriam-Webster’s online dictionary (https://www.merriam-webster.com/dictionary/physical) defines it as “having material existence: perceptible especially through the senses and subject to the law of nature.” The word “physical” fits the word “tangible” used later in the definition. What is “tangible” is touchable, and “tangible property” is property that can be touched and handled and, more broadly, experienced with the senses.

A physical injury, therefore, is a negative or undesired change—undesired, that is, on the part of the person whose property has been changed—to the physical or tangible aspects of some property, whether it is a change of shape, appearance, color, texture, strength, resilience, or some other aspect of its material existence. An alleged change to the “aura” of a home would not be property damage, since damage to an “aura” is not physical. A change in the smell of a home, however, would be.

Key Takeaway: Physical injury to tangible property is a negative or undesirable change—damage—to the physical or tangible aspects of some property, whether it is a change of shape, appearance, color, texture, strength, resilience, or some other aspect of its material existence.

Farmers Ins. Co. of Oregon v. Trutanich

In September 1989, Daniel Trutanich came to the house he owned and discovered that his tenant had moved out—and also noticed the smell of a meth lab that had been operated in the house. He filed a claim for damages to the house and his property, in particular because of the odor. His insurer declined coverage. One of their arguments for doing so was that the policy spoke of “physical” loss, and odor is not physical.

The trial court determined that “a pervasive odor persists in the house” and found in Trutanich’s favor. When the insurer appealed, the court of appeal upheld the trial court’s decision: “We conclude that odor was ‘physical,’ because it damaged the house.” It wasn’t simply that the odor resulted in a loss of use until the smell could be removed, said the court. “The house was physically damaged by the odor that persisted in it…. The cost of removing the odor is a direct physical loss.”

See Farmers Ins. Co. of Oregon v. Trutanich, Court of Appeals of Oregon. September 1, 1993 123 Or.App. 6858 P.2d 1332.

The policy does not limit “property damage” to such negative, undesirable changes to someone’s property. It includes the destruction of that property, as well. It also includes “loss of use.” In the Trutanich case described above, Trutanich was determined to have had his home damaged by the meth lab, which required the damage to be fixed by whatever was required to mitigate the pervasive bad smell, but he also was unable to use the house while the repairs were being done. Such loss of use is included in policy’s definition of “property damage.”

Some older policies defined “property damage” as “physical injury or destruction to tangible property, including the loss of use of that property,” which implied that the loss of use was of the property that had suffered physical injury or destruction. And so courts have ruled that loss of use that does not result from physical damage to property is not considered “property damage” under the policy. The current HO-3, however, is worded differently. It defines “property damage” as “physical injury to, destruction of, or loss of use of tangible property”—three distinct possibilities, joined by the word or, so that the loss of use need not result from physical injury or destruction of the property.

It is possible to have loss of use without property damage. For instance, if Mr. Meyers has set up targets along his fence and he and his sons fire their BB guns at them, their neighbor may allege that their activities make it unsafe for him to use his backyard. He is afraid that if he or his family went outside into the backyard, they may be struck by a stray BB. No physical damage has taken place and no one has been injured, but he is alleging “loss of use” of part of his tangible property, part of the real estate he owns. Regardless of whether a court would find that this really does constitute “loss of use,” the allegation may be sufficient for Mr. Meyers’ insurer to defend him.

McCreary v. Florida Residential Property and Casualty Joint Underwriting Ass’n

Fran and Cain McCreary owned a home in Broward County, Florida. Their neighbor, Anton Rebalko, sued them because they did not control and confine their dogs, keeping them on their own premises. The dogs roamed in the neighborhood, often entering Rebalko’s yard and endangering his pets, so that their presence—and the McCrearys’ negligence—affected Rebalko’s use and enjoyment of his property.

The McCrearys’ insurer informed them that there was no coverage for these claims and that it was not obligated to defend them in the lawsuit. They sought a summary judgment from the court, and the trial court concluded in favor of the insurer. The McCrearys appealed.

The insurer argued that there was a difference “an occurrence which renders one unsafe and insecure in the use and enjoyment of his property and actual loss of use of property.” Rebalko had not said explicitly in his charge that he suffered from “loss of use.” The court of appeal, however, said “an insured must defend a lawsuit against its insured if the underlying complaint, when fairly read, alleges facts which create potential coverage under policy.” Rebalkos’s complaint did not use the words “lose of use of property,” but his claim that the McCrearys’ actions made him “unsafe and insecure … in the use and enjoyment of his own property” did raise a question as to whether, in fact, he did suffer loss of use.

The court ruled, therefore, that the trial court was in error in rendering a summary judgment without examining the factual issue in the case, and sent the matter back to the trial court for further proceedings.

See McCreary v. Florida Residential Property and Casualty Joint Underwriting Ass’n, 758 So. 2d 692, 694 (Fla.Dist.App. 4 Dist. 1999).

Key Takeaway: In the wording of the policy, “loss of use” of tangible property does not have to be the result of the physical injury to or destruction of that property.

It is important to note that property damage, including “loss of use” even when it doesn’t result from a physical injury to property, applies only to “tangible property.” As we saw above, the word “tangible” means “touchable.” More broadly, it is taken to mean that the property in question has form and substance that can be perceived by one or more of the five senses.

Property may be “real” or “personal.” “Real” property is defined as “land and immovable property on land such as buildings” (Black’s Law Dictionary, online: https://thelawdictionary.org/real-property/). “Personal” property are the other belongings that an individual has (Black’s Law Dictionary, online: https://thelawdictionary.org/personal-property).

Each of these forms of property may be tangible or intangible. Tangible real property is the land itself and the immovable buildings and structures on it. Intangible real property include things like easements (e.g., the right to use a neighbor’s driveway) and rental payments on a house or land. Tangible personal property include all of one’s possessions that can be touched and handled, seen and smelt and so on. Intangible personal property include rights (e.g., copyright on something an individual has written; a patent, which gives its owner the right to make and control the use of his invention).

The distinction is important because when the policy speaks about property damage, it is speaking only of tangible property. If the neighbor’s grass fire spreads to your yard and damages your fence, your fence is tangible property and so this is “property damage” under the policy. But if a neighbor’s failure to care for his house and yard makes his property look ugly and unsafe and you suspect that that is lowering the value of your home, that is not damage to tangible property. Your home itself is not being injured or harmed by the neighbor’s actions. Nothing tangible has been affected. Economic loss is not property damage.

If someone burns the manuscript of the book you are writing, that is damage to tangible property. But if someone posts a PDF copy of your published book on the internet, he has violated your copyright but he has not damaged your tangible property. Again, the potential economic loss is not property damage.

Key Takeaway: Only tangible property—property made out of matter, with a form, that can be experienced by the five senses—can suffer “property damage,” according to the policy’s definition. Ideas, rights, easements, expected benefits, and finances may suffer a loss, but such loss is not “property damage,” by the policy’s definition.

Kazi v. State Farm Fire and Cas. Co.

The State of California’s Santa Monica Mountains Conservancy sold a parcel of land (Parcel A) to Zubair and Khatija Kazi and another (Parcel B) to David and Lynn Tollakson. The Conservancy provided the buyers with a booklet that stated that the two parcels of land shared a common driveway, twenty feet wide, that straddled the boundary line between the two parcels. The deeds, however, did not mention an easement for a common driveway. The Tollaksons, however, assumed that what the booklet said implied that there was an easement—a right for them to use some of Parcel A for a “common driveway, for ingress, egress, and a right of way over and across Parcel A, parallel to the Boundary Line.”

The Kazis wanted to build on their land and so they graded an access road on Parcel A, near the boundary line. The Tollaksons told the Kazis that the grading of that access road interfered with their easement and their right-of-way over the Kazi’s parcel of land so that they couldn’t use and possess their own parcel of land. Without that easement, they said, they would not be able to build on Parcel B. The Kazis denied that there was an easement over Parcel A, and the Tollaksons sued them and the Kazis asked their insurers to defend them.

Eventually, the Kazis and Tollaksons agreed that there was no common driveway, and the Kazis agreed to record a deeded easement for the Tollaksons in a part of Parcel A so that they could build a separate driveway into Parcel B. But although that dispute was settled, the Kazis were not happy with the reimbursement they did receive from their insurers. The insurers’, however, denied that they had a duty to defend or provide coverage for the Kazis because the Tollaksons’ suit did not allege any property damage. A dispute over an easement has to do with intangible property.

The trial court agreed, the Kazis appealed, the court of appeals reversed the trial court’s decision, and the insurers appealed. The Supreme Court of California heard the case. The court of appeals had concluded that an implied easement can be turned from intangible property to tangible if access to it is blocked. The Supreme Court did not agree. An easement is an intangible property right—the right to “the intangible benefit of access to the easement holder’s property”—and the damages that “the Tollaksons claimed were for economic loss due to loss of use of the easement.” Therefore, said the court, the insurers had no duty to provide coverage, including a defense, for the Kazis in respond to the Tollaksons’ claim.

The court also pointed out, the court of appeal had mistakenly interpreted the Tollaksons’ complaint, taking the Tollaksons to be saying that the Kazis had graded not only their own land but also part of the Tollaksons’ land, which was not in fact what the Tollaksons’ complaint said. Had that been the case, that would have constituted a charge of property damage, damage to the Tollaksons’ own land. But, in fact, the only tangible property that had been affected was the Kazis’ own.

See Kazi v. State Farm Fire and Cas. Co., 24 Cal. 4th 871, 103 Cal. Rptr. 2d 1, 4, 15 P.3d 223 (Cal. 2001).

Section 13: “Residence Employee”

The homeowner’s policy has already defined “employees” earlier (definition 4). But the policy distinguishes between residence employees and other sorts of employees. A residence employee is an employee who has certain specific duties relating to the residence premises, as those are defined elsewhere in the policy. This distinction is important because the policy provides different coverage for residence employees than it does for all other sorts of employees. For instance, there is personal property coverage for residence employees, but not for other employees.

10. “Residence employee” means:

a. An employee of an “insured”, or an employee leased to an “insured” by a labor leasing firm, under an agreement between an “insured” and the labor leasing firm, whose duties are related to the maintenance or use of the “residence premises”, including household or domestic services; or

b. One who performs similar duties elsewhere not related to the “business” of an “insured”.

A “residence employee” does not include a temporary employee who is furnished to an “insured” to substitute for a permanent “residence employee” on leave or to meet seasonal or short-term workload conditions.

Who: Residence employees are defined as an insured’s employees, whether hired by the insured directly or leased through a firm, whose duties have to do with the maintenance or use of the insured’s residence premises, including things that are regarded as household or domestic services, or persons who do the same sort of work off the residence premises so long as that work is not part of the insured’s business activities. Temporary employees who substitute for permanent employees who are on leave or who are hired to help with seasonal work or do short-term work are not considered “residence employees.”

The policy’s definition of “residence employees” includes two categories of people, but makes it clear that another category of employees is not included.

The first category of people who are considered “residence employees” are person who are hired by an insured—not necessarily the named insured, but anyone who is an insured under the policy. If Mrs. Wilson’s elderly mother lives with her and employs a personal nurse who takes care of her, Mrs. Wilson’s mother is an insured under the policy and the nurse is her employee and therefore the nurse is a residence employee under Mrs. Wilson’s homeowner’s policy. This first category also includes persons who are hired through a labor leasing firm with specific duties having to do with the residence. In this case, the person is employed by the firm but is working for the insured. There is a formal agreement between the insured and the firm, under which the insured pays the firm a regular amount and the firm pays the worker. The policy treats such workers as residence employees and does not distinguish between them and employees who are hired directly by an insured.

It is important to note that the policy is not speaking here of people who are in business and who come to the house to perform a particular task. The neighborhood teenager who cuts the grass once a week is not a residence employee. Nor is the plumber who clears out the hair that keeps the tub from draining or the pest control person who sprays for termites or the carpenter who is remodeling the bathroom. These people, while hired to do a job, are not the insured’s regular employees and are not considered residence employees under the policy. Residence employees have duties that “are related to the maintenance and use of the ‘residence premises,’ including household or domestic services.” There is some overlap between terms here. “Household” and “domestic” mean the same thing—including both terms improves clarity—and every employee involved in the maintenance and use of the premises could be considered a household or domestic servant. Black’s Law Dictionary (5^th ed.) defines a domestic servant as “a person hired or employed primarily for the performance of household duties and chores, the maintenance of the home, and the care, comfort and convenience of members of the household.”

There are many sorts of employees that fall into this category, including personal chefs, housecleaners, maintenance men, nannies, personal nurses, maids, footmen, butlers, valets, groundskeepers, gardeners, and chauffeurs. In the case of a farm or ranch, however, the ranch hands and those who assist in the work of farming are not considered residence employees. Their work is associated with the business of the ranch or farm, not with the residence itself.

There is, however, a second category of people who are also considered “residence employees” for the purposes of the homeowner’s policy. The policy defines a “residence employee” so that it also includes “one who performs similar duties elsewhere”—that is, not on the residence premises—so long as those duties are “not related to the ‘business’ of an ‘insured.’” An insured might, for instance, have a personal chef who cooks her meals at her house, and this chef would be a residence employee. But it might be possible for the insured to have her chef cater a large function for her family and friends at some location other than her house. So long as that function is not related to her business—or to the business of any other insured—the chef at this function would be considered a residence employee under the policy. But if the insured takes prospective business clients to a resort and has her personal chef cook for them, the personal chef would not be functioning at that point as a residence employee. He would be furthering the insured’s business, not taking care of her household.

Similarly, an insured might have a nanny who lives in the home and looks after the children, and this nanny would be a residence employee. But a nanny might also pick the insured’s children up from school and take them to the park. Even though these activities do not take place on the residence premises, the nanny is still functioning as a residence employee, providing care for the members of the insured’s household. It should be noted that the fact that a particular person does various activities that involve the maintenance and use of the residence premises does not mean that he is considered a residence employee under the policy. For instance, if an insured has one of the employees of his company do some chores at his house, that does not in itself make the employee a residence employee. He is hired and paid through the insured’s company.

Key Takeaway: A “residence employee” is someone who is hired by an insured—whether directly or through a firm—and whose employment has to do with the insured’s residence or who performs residence-type work for the insured somewhere else, but not someone whose employment has to do with an insured’s business.

Allen v. Sentry Ins.

Bruce and Debbie Allen ran a coal company out of their home in Derry, New Hampshire. Debbie was the sole stockholder and Bruce was an employee. The coal was stored at their residence and delivered by truck to their customers. Their homeowner’s policy included endorsements to extend coverage for workers’ compensation claims of residence employees and for the business use of their residence premises.

On August 25, 1986, James O’Connell was riding in a truck driven by Bruce Allen. They had delivered coal to a customer and were returning to the Allens’ home when they were involved in an accident with another vehicle which resulted in O’Connell’s death.

O’Connell did chores on the Allens’ residence premises, but he also worked in their coal business and was paid by their company. The Allens expected their insurer to provide coverage for liability arising from O’Connell’s death, but their insurer argued that O’Connell was not a residence employee. The trial court concluded that he was, and the insurer appealed that decision.

The Supreme Court of New Hampshire agreed with the insurer. “O’Connell was not a residence employee under the policy’s definition because he was not an employee of an insured.” He wasn’t working for either Bruce or Debbie Allen—the only insureds under the policy—but rather was working for their coal company. While he did some yard work and other chores, his wages were paid by the company and at the time of the accident he was involved in delivering coal for the company. Since O’Connell was not a residence employee, the homeowner’s policy provided no coverage for liability arising from his death.

See Allen v. Sentry Ins., Supreme Court of New Hampshire. August 31, 1993 137 N.H. 579630 A.2d 780.

Alongside its definition of a “residence employee,” the policy also makes it clear that temporary employees who are hired to fill in for a permanent residence employee who is on leave—for instance, during a vacation—or who are hired to do seasonal work or to help with short-term projects are not considered “residence employees.”

For instance, Mrs. Wilkins might hire a butler and some footmen to help with the Christmas banquets she is planning to host, but those employees are hired only for that extra work associated with the Christmas season and so are not “residence employees” under the homeowner’s policy. Similarly, Mrs. Wilkins might find that for a month or so during the spring she needs an extra groundskeeper. But because his work has to do with a short-term workload, he would not be considered a “residence employee.” And so, too, if Mrs. Wilkins needed to lease a chef to fill in during her regular chef’s vacation or a gardener to fill in during her regular gardener’s maternity leave, those temporary substitutes would not be considered “residence employees.”

Section 14: “Residence Premises”

The only difference between the 2000 and the 2011 versions of the policy is the inclusion of hyphens in the latter, so that “one family” (2000) becomes “one-family” (2011) and “two, three or four family” (2000) becomes “two, three- or four-family.” There is no change in meaning, nor is there any change in the coverage that the policy provides.

HO 00 03 10 00—2000 Version

11. “Residence premises” means:

a. The one family dwelling where you reside;

b. The two, three or four family dwelling where you reside in at least one of the family units; or

c. That part of any other building where you reside;

and which is shown as the “residence premises” in the Declarations.

“Residence premises” also includes other structures and grounds at that location.

HO 00 03 05 11—2011 Version

11. “Residence premises” means:

a. The one-family dwelling where you reside;

b. The two-, three- or four-family dwelling where you reside in at least one of the family units; or

c. That part of any other building where you reside;

and which is shown as the “residence premises” in the Declarations.

“Residence premises” also includes other structures and grounds at that location.

What: The “residence premises” is the place where the named insured lives, whether it is a one-family dwelling, the whole of a two- to four-family dwelling where the named insured lives in one of the family units, or some part of another building where the named insured resides. It must be identified as the residence premises in the Declarations. Other structures and grounds at any of these locations are included as “residence premises.”

The homeowner’s policy insures persons but it insures them in connection with certain buildings and grounds. Just as the policyholders are identified as the named insured in the Declarations, so too the residence premises must be identified in the Declarations.

The residence premises may be a one-family dwelling, such as a house, where the named insured (“you”) lives. But the policy also lists two other possibilities. A named insured might own a multi-family dwelling. So long as it does not contain more than four family units and so long as the named insured lives in one of them, the whole dwelling is considered his residence premises, even though the other family units are rented to other people. The third category of residence premises is “that part of any other building where you reside.” A named insured might, for instance, own a building that has a store downstairs with a family unit upstairs. The store is not considered the residence premises, but the part of the building in which the named insured resides—in this case, the upstairs apartment—is considered the residence premises.

In connection with each of these three categories, we hear the phrase “where you reside.” The residence premises is not necessarily the only residence a named insured might have—he might, for instance, have another residence that he uses from time to time (see “insured location” above)—but it is a place the named insured resides and, in the view of most courts, the principal residence, the primary residence, of the named insured.

Key Takeaway: For a dwelling to be considered the named insured’s residence premises, the named insured must reside in that dwelling at the time of an incident and it must be included as his residence in the Declarations. If he no longer lives there, there needs to be a change in his insurance policy.

Questions arise when the named insured is not living in the residence that is listed in the Declarations. For instance, someone may purchase a house and then not move into it. Or someone may buy a house and live in it for a while and then move out, leaving the home vacant—or perhaps renting it someone else.

In some cases, courts have ruled that such a house is still to be considered the named insured’s “residence premises,” sometimes taking the phrase “where you reside” as a description of the property at the time the policy was purchased and not as a requirement that the named insured reside at that property. Most often, however, courts have concluded that for there to be coverage, the named insured must reside at the residence premises.

Farmers Ins. Co. of Oregon v. Trutanich

In November 1988, Daniel Trutanich purchased a house. In June 1989, he moved to an apartment, leaving some of his possessions in a locked bedroom, and rented the house to the Greshams, who later moved out and found a new tenant, Pixler. Pixler rented the lower level of the house to three others, who used it as a methamphetamine lab. In September 1989, Trutanich came to the house and discovered that Pixler had moved out—and also noticed the smell of the meth lab.

He filed a claim for damages to the house and his property, but his insurer declined coverage. One of their arguments for doing so was that, though the house was listed in the Declarations as Trutanich’s residence premises, he was not in fact residing there at the time.

When Trutanich filed suit, the trial court ruled in his favor. His insurer appealed, and the court of appeals examined the whole matter again. It recognized that the policy defined “residence premises” as “the one or two family dwelling and separate structures or that part of any other building where you reside, and shown in the Declarations.” But it questioned whether “where you reside” applied only to “that part of any other building” or also to “one family dwelling.” And even if it applied to the one family dwelling, the court said, it could just be a description of the house at the time Trutanich purchased the policy, rather than an indication that Trutanich had an obligation to continue to reside there in order to maintain coverage.

The court cited another case, Insurance Co. of North America v. Howard, 679 F.2d 147 (9th Cir.1982), where the policy contained the words “owned and occupied,” but the court ruled that that phrase merely described the house at the time the policy was purchased. “If an insurance company wishes to have a homeowner’s policy terminate upon rental of his home, it must so provide explicitly and unambiguously in the policy of insurance.” Besides, it ought to inform the homeowner specifically that if he moves out of the home, he must make new arrangements to provide coverage for his home.

The court of appeals concluded that the reference to “where you reside” in the policy did not require Trutanich to continue to reside in the house in order to have coverage.

See Farmers Ins. Co. of Oregon v. Trutanich, Court of Appeals of Oregon. September 1, 1993 123 Or.App. 6858 P.2d 1332.

Centre Ins. Co. v. Blake

In March 2001, Jeffrey Blake bought a duplex and purchased a homeowner’s policy for it. For a while, he lived in one of the units and rented out the other. In August 2002, however, he moved out of the duplex and rented out the unit he had been living in. He kept some personal property on the premises, but did not stay in either of the units from this point on.

On June 7, 2003, a minor, Ashley Escarraz, came to visit her aunt, who was living in one of the duplex units. While there, she climbed a railing on the back porch and was injured. When Blake’s insurer learned about the incident, it declined coverage, canceled Blake’s policy, and refunded the premiums he had paid back to the date it learned that he was no longer residing at that property.

The insurer sought a declaratory judgment from the court to the effect that it did not have to provide Blake with coverage for this incident. The court understood the homeowner’s policy to require both that the insured reside at the residence premises and that those premises be listed in the Declarations. The latter was the case, but was the former? The court pointed to statements by Blake himself indicating that he had resided at the duplex but now resided at a different address. In fact, when asked directly, he explicitly denied that he resided at the duplex.

The court drew the conclusion: “To require the insurance company to provide coverage for property not used as the insured’s residence premises would constitute an extension of liability where none previously existed…. According to the plain language of the homeowners policy at issue, the insured must reside at the insured premises for there to be coverage.” The court ruled that Blake’s insurer had no duty to provide coverage for his liability with regard to the accident.

See Centre Ins. Co. v. Blake, 370 F. Supp. 2d 951, 955 (D.N.D. 2005).

In some cases, however, courts have recognized that an insured is in the process of selling a home, has a new residence, but has not yet finished with the old residence. For instance, a named insured might have property in his old home and might even stay there overnight sometimes as he is preparing to finalize his move to his new residence. In this connection, some courts take into account that the policy allows for the house to be vacant for up to 60 days and yet be covered for some losses (Section I—Property Loss, E.9.b.2).

Lundquist v. Allstate Ins. Co

In 1972, David and Kathryn Lundquist purchased a home in Rockford, Illinois. They lived there until August 1995, when they moved to a new house in Oregon, Illinois. In October 1996, they signed a contract to sell the house, with closing set for late December, but a fire—the result of arson and vandalism—destroyed the house on December 5.

The Lundquist’s insurer declined coverage because the Lundquists were no longer residing in the house and the homeowner’s policy explicitly said that it would not cover losses caused by vandalism “if your dwelling is vacant or unoccupied for more than 30 consecutive days immediately prior to the vandalism.”

When the case came to court, the trial court ruled in favor of the insurer. The Lundquists appealed. They argued that their home in Rockford was not vacant or unoccupied. Their sons stayed there for at least two weekends a month, David stayed there a couple times while doing repairs on the house, Kathryn came there weekly and cleaned the house. They had “paintings, decorations, house plants, tools, rakes, shovels, clothes, toothbrushes and other toiletries, chairs, blankets and other bedding, tables, kitchen appliances (including a refrigerator and two stoves), dishes, cooking pots, mirrors, a Gravely lawn tractor in the garage for lawn mowing, and a fully equipped weight room in the basement of the home.”

The appellate court took “vacant” to mean “generally empty or deprived of contents” and noted that the Rockford house still held many of Lundquist’s possessions. It took “unoccupied” to mean “that no one was living in the dwelling or had actual use or possession of the dwelling at the time of the loss” and noted that the Lundquists continued to be present at the Rockford house at various times during the days before the loss.

The insurer saw the term “reside” as unambiguous: The Lundquists had moved to a new home and that was now their residence and the Rockford house was not. The Lundquists, however, argued that the term “reside” is ambiguous. They saw it as equivalent to “occupy” and argued that they did occupy the Rockford house in various ways by their frequent visits and overnight stays there during the time before the fire. The appellate court agreed that the term is ambiguous: “While it is clear that physical presence is a necessary component of residence, it is unclear what degree of physical presence is necessary before someone is deemed to reside in a particular location.” The court reversed the trial court’s decision and remanded the case for further proceedings.

See Lundquist v. Allstate Ins. Co., Appellate Court of Illinois, Second District. June 19, 2000 314 Ill.App.3d 240732 N.E.2d 627247 Ill.Dec. 572.

Courts have also sometimes recognized that a named insured may be unable for a time to live in his residence premises and may live elsewhere for a time, while intending to return to the residence premises in the future. The move away is temporary, and therefore does not constitute a change in residence premises.

FBS Mortg. Corp. v. State Farm Fire and Cas. Co. of Bloomington, Ill.

In May 1988, Julio Rodriguez and Maria Andrade purchased a house with a mortgage loan. Both were listed as named insured on the homeowner’s policy. They lived together until Andrade left Rodriguez in February 1990 and transferred her interest in the premises entirely to Rodriguez. In April, Rodriguez was arrested and sent to jail till January 1991. He sent a notarized, handwritten letter to Carmen Cabrera, leaving her in charge of maintaining his house while he was in jail and she moved into an apartment on the second floor of the house, with a tenant renting the main floor. Eventually Cabrera moved out and Rodriguez put a man in charge of the building.

Neither Rodriguez nor Andrade paid the mortgage and the mortgage company prepared to foreclose. But that December, the premises were destroyed by fire. Neither Rodriguez nor Andrade submitted a claim, but the case was brought to court by the mortgage company, seeking to recover for the loss. The insurer insisted that the policy required the named insured to reside at the premises and neither Rodriguez nor Andrade had for the eight months before the fire.

The district court, however, regarded the definition of “residence premises” as ambiguous. The phrase “where you reside,” the court said, “does not unambiguously require continuous physical presence or forbid temporary absences by the Named Insured” and the definition “does not address whether an involuntary, eight-month absence from the Insured Premises … is grounds for denying coverage.”

Furthermore, the court noted that Rodriguez placed someone in charge of the premises. “It is difficult to conceive of any other steps that Rodriguez might have taken to maintain a physical stake in the Insured Premises during his incarceration.” The court added, “An inmate’s technical legal residence does not necessarily change during the period of incarceration. This is because one’s imprisonment does not indicate an intent to change his residence.”

The court therefore ruled in favor of coverage for the mortgage company under Rodriguez’s policy.

See FBS Mortg. Corp. v. State Farm Fire and Cas. Co. of Bloomington, Ill., United States District Court, N.D. Illinois, Eastern Division. September 16, 1993 833 F.Supp. 688.

Separation and divorce in which the named insured moves out can jeopardize coverage. If Mr. Chan is the named insured and his wife leaves, Mr. Chan is still living in the residence premises. But if he leaves and his wife continues to live in their house and she is not a named insured, then problems arise. The policy speaks of the residence premises as the place “where you reside” and defines “you” as the named insured, as well as a resident spouse. But the spouse is no longer “resident” with the named insured and the named insured is no longer residing in the property listed in the Declarations. For this reason, as discussed under the definition of “You” above, it is often best to have both spouses as named insureds.

Georgia Farm Bureau Mut. Ins. Co. v. Kephart

June Kephart and her husband Walter bought a home early in 1989. The title was in both of their names and both were named insureds on their homeowner’s policy. But toward the end of the year, in light of marital problems, Kephart had her insurer remove Walter’s name from the policy. Both spouses planned that Kephart would retain the house after the marriage was ended.

In fact, however, Walter and his girlfriend moved into the house, while Kephart went to stay at her mother’s place. She filed for divorce in September 1990 and the divorce was finalized on October 31. Then, on November 30, the house was destroyed by fire.

Because Kephart was the only named insured on the policy and was not residing in the residence premises at the time—though some of her possessions were there—her insurer declined coverage. There was a jury trial. When asked “Did June Kephart reside in the premises described on the policy declarations page at the time of the fire loss?” the jury answered in the affirmative. The court of appeals, however, did not believe that answer was warranted by the evidence.

The Kepharts’ separation decree stated explicitly that “the Husband is to keep the marital abode.” Kephart testified that she never resided there since she left in March 1990. The court of appeals therefore concluded that, however harsh it may seem, Kephart was not entitled to coverage under her policy. Nor, of course, was her former husband.

See Georgia Farm Bureau Mut. Ins. Co. v. Kephart, Court of Appeals of Georgia. November 29, 1993 211 Ga.App. 423439 S.E.2d 682.

In all three categories of “residence premises,” the “other structures and grounds at that location” are also included in the definition of “residence premises.” Other structures could include buildings such as a shed, workshop, detached office, detached garage (perhaps with a bonus room above it), detached “mother-in-law” suite, storage building, boathouse, gazebo, pergola, pavilion, pool house, or cabana. The grounds—generally, the yard surrounding the dwelling and the various buildings associated with it—is also considered the “residence premises.”

Schuchman v. State Auto Property and Cas. Ins. Co.

Glenna Reed bought a parcel of land in Junction City, Illinois, in 1980 and moved into the single house on the property. In 1983, she married Norman Schuchman, who moved in with her.

The house and the property had a single address at that time: “Rural Route # 1.” In the late 1980s and early 1990s, Ms. Schuchman moved two mobile homes onto the property, one for her mother and one for her stepfather, and these homes were assigned a different mailing address: “Rural Route # 2.” By 1993, they had new addresses. The house was 109 West 14^th Street, and the mobile homes were 1406 and 1408 Madison Avenue. But the property had never been divided. The Schuchmans paid property tax on the property as a whole, and title searches for the individual addresses all return the same piece of undivided land.

In September 2000, the Schuchmans applied for homeowner’s insurance from State Auto through an insurance broker, Michael Wethington. On the application, two addresses appeared: 1408 Madison Avenue as the mailing address and 109 West 14^th Street as the location of the property. The Schuchmans marked that the house was owner-occupied and that they did not own or occupy any other residence. State Auto issued them a policy and they continued to renew it annually.

Eventually, the Schuchmans moved two more mobile homes onto the property and moved into them. Wethington, their broker, told them that State Farm wouldn’t insure mobile homes and so they got a policy for them from a different company. Wethington also told them that as long as they resided on the property, State Auto would cover the house.

For a while, the Schuchmans’ son Richard lived in the house. When he moved out, the Schuchmans shut off the water and gas. But in 2010, a fire broke out in the house and damaged it. State Auto denied coverage for the building because, it said, it was not the Schuchmans’ residence. They were living in the mobile homes instead.

When the Schuchmans filed suit, the district court found in favor of State Auto. The Schuchmans appealed. The court of appeals recognized that the crucial question was whether the Schuchmans were living on the residence premises, and specifically whether the residence premises included the grounds on which the mobile homes were located. The policy, after all, did not limit “residence premises” to the specific house located at 109 West 14^th St., but included “other structures and grounds at that location.”

State Auto based its argument on the difference in the addresses, but the court of appeals did not find that argument compelling. A multi-family dwelling could have several distinct addresses and yet be considered the residence premises. The court of appeals noted that, in spite of the distinct addresses, the property had never been divided into separate lots: “State Auto doesn’t tell us where the grounds associated with ‘109 West 14^th Street’ end, and those associated with 1408 Madison Avenue begin. It can’t.” The Schuchmans’ view that the residence premises included the grounds on which their mobile homes were located had a legal basis: all the homes were on one piece of property with one legal title.

The court also pointed out that the Schuchmans had used both addresses on their application: “It would have made little sense for the Schuchmans to list a separate mailing address while also indicating that they did not own another residence, unless they considered both mailing addresses to be assigned to a single property.”

Moreover, they had been informed by their broker that State Auto would cover the house so long as they kept living on the residence premises—and Wethington, an insurance agent, apparently thought they were doing so although he knew they were living in the mobile homes.

Furthermore, the Schuchmans had continued to pay their premiums for coverage on the entire residence premises, including the house, because they thought they were meeting the residence requirements for coverage.

The court of appeals concluded that the term “residence premises” was ambiguous and that the Schuchmans’ interpretation and that of State Auto were both valid interpretations. And so the court ruled in favor of coverage for the Schuchmans.

See Schuchman v. State Auto Property and Cas. Ins. Co., United States Court of Appeals, Seventh Circuit. October 23, 2013 733 F.3d 231.

KEY TAKEAWAYS

Key Takeaway #1: Physical Hazards are physical characteristics which increase the probability or severity of loss. Moral Hazards are demonstrated by a conscious mental attitude which increases the probability or severity of loss. Morale Hazards are demonstrated by an unconscious mental attitude which increases the probability or severity of loss.

Key Takeaway #2: A contract is a promise or agreement that is enforceable under the law. The elements of a contract are:
an offer, acceptance, consideration, mutual assent, legality, and competent parties. An offer is the promise one party makes in exchange for another party’s performance. An acceptance of an offer is an express act or indication that demonstrates an agreement to the terms of an offer in a manner required by the offer so that a binding contract is formed. Consideration is the “value” given to someone in return for something of “value” or a promise of something of value. All valid contracts must include consideration for every party involved. For a contract to be binding there must be mutual assent; that is both parties have agreed to the same things. The contract must be for a lawful transaction and the parties to the contract must have the legal status (that is be legally competent) to enter into the contract.

Key Takeaway #3: The insurance company and the insured who are named in the policy have obligations toward each other. Each must do something for the other.

Key Takeaway #4: The insurer writes up the policy and the person who wants insurance either accepts the policy or rejects it. It is therefore the responsibility of the insurer to define important terms clearly. If there is an ambiguity, the court rules in favor of the insured.

Key Takeaway #5: The terms “you” and “your” in the policy refer to the named insured, however many there are, as well as any spouse of a named insured who is living in the named insured’s household. Who is counted as a spouse may vary from state to state, and some states recognize civil unions and domestic partnerships in addition to marriages.

Key Takeaway #6: Although a spouse is included in the definition of “you” in the policy, it is better to name both spouses in the Declarations page so that coverage is maintained even if there is a separation or divorce.

Key Takeaway #7: The policy defines “bodily injury” so that it includes physical harm to some part of the body, but also the feeling of sickness or a disease, even if it doesn’t cause a feeling of sickness or pain. It also extends to the “after-effects” of bodily harm, sickness or disease, including the care the injured person needs, any court-appointed costs in the event that the injury results in the loss of someone’s family member, and the person’s death as a result of the injury, even if it happens long after the injury and even if the person is no longer insured under this particular policy.

Key Takeaway #8: Whether the term “bodily injury” can include mental anguish or emotional distress has been discussed and debated often in the courts. While some courts have found in favor of coverage even when the emotional or mental disturbance has no physical cause and no physical manifestations, those rulings are still in the minority. But if there are allegations of physical causes or manifestations of the emotional or mental distress, courts often do see those allegations as sufficient to require insurers to defend the insured and possibly to compensate them for damages.

Key Takeaway #9: While the distinction between business pursuits and non-business pursuits may seem clear at first glance, questions do arise and courts often evaluate them on a case-by-case basis.

Key Takeaway #10: The homeowner’s policy regards as “business” all activity that is done to make money or to receive other forms of compensation, with four exceptions: work other than volunteer work or day care services for which an insured earns $2000 or less in the twelve months before the policy is renewed or begins; volunteer work with expenses reimbursed but no compensation; day care services with no compensation except an exchange of such services; and day care services done for a relative of an “insured,” even if there is compensation.

KEY TAKEAWAYS

Key Takeaway #11: The homeowner’s policy defines an “employee” in terms of who the employee is working for and what the employee’s duties are. An “employee” in the policy is not just anyone’s employee but specifically someone who works for an insured, whether hired directly by the insured or leased from a firm. And an “employee” is any employee whose duties are not those of a “residence employee,” as that term is defined later in the policy. The policy treats an “employee” and a “residence employee” differently.

Key Takeaway #12: The homeowner’s policy includes relatives who are resident in the named insured’s household as “insureds.” The relationship may be by blood, through marriage, or via adoption. Relationships through marriage, however, end with the end of the marriage. Courts also sometimes do not regard distant relations as “relatives” for the purpose of the policy.

Key Takeaway #13: For a relative to be an insured under the homeowner’s policy, the relative must be a resident in the named insured’s household. Courts take into consideration whether the relative lives under the same roof as the named insured, whether the relative’s stay is brief and temporary or long enough that the named insured should have taken it into account when thinking about an insurance policy, and whether the relative merely lives in the same building or has a close, intimate, informal relationship with the named insured. No one factor, however, is absolutely decisive.

Key Takeaway #14: When the homeowner’s policy speaks of a resident of a “household,” it is not speaking specifically of an individual’s relationship to a particular building. It is speaking of the individual’s relationship to a person or group, in this case, the named insured and those who make up his or her household.

Key Takeaway #15: For a minor who is not a relative of the named insured to be considered an insured under the policy, he or she must be a resident of the named insured’s household and be “in the care of” the named insured or another resident relative. Courts weigh various factors to determine if a minor is merely present in the house or actually in the care of an insured in the household.

Key Takeaway #16: To be an “insured” under the homeowner’s policy, a student must be enrolled full-time, by the college’s definition of “full-time,” must have been a resident of the named insured’s household before moving out to attend school, and must be under a certain age, depending on whether he or she is a relative of the named insured or a minor in the care of an insured.

Key Takeaway #17: The homeowner’s policy includes as “insureds” persons or organizations who are legally responsible for an insured’s animals or watercraft. But they are not “insureds” if they do not have the owner’s permission or if they are using or having custody of the animals or watercraft in connection with a business.

Key Takeaway #18: In the case of motor vehicle liability, employees of any insured—as defined elsewhere in the policy—and others who are using the motor vehicle, with permission, on an insured location are included as “insureds.”

Key Takeaway #19: The homeowner’s policy defines an “insured location” to include the places where a named insured resides, places he or she uses in connection with a residence, as well as premises where any insured lives, vacant land any insured owns, land where a residence for an insured is being built, an insured’s place of burial, and premises an insured occasionally rents. All of these locations have something to do with an insured’s place of living, not an insured’s business.

Key Takeaway #20: A “motor vehicle” under the policy is self-propelled, not driven by wind or muscle, but by a motor. But the policy also includes in this category trailers that do not themselves have motors but are attached in some way to a motor vehicle.

KEY TAKEAWAYS

Key Takeaway #21: For an incident to be an “occurrence” under the policy, it must be an “accident.” That does not mean that it must happen by chance, for no reason whatsoever. Rather, it means that the bodily injury or property damage that occurred was unexpected, unnecessary, unforeseen, unplanned, and unintentional on the part of the insured. If the insured intended to do something that a reasonable person could foresee would cause injury or damage, that action is not considered an “accident” and therefore is not an “occurrence.”

Key Takeaway #22: There is no such thing as “negligent sexual molestation” or “negligent sexual assault.” The intent to do such things just is an “intent to harm”. Therefore, sexual assault or molestation are never “occurrences,” and liability for them is not covered by the homeowner’s policy.

Key Takeaway #23: An “accident,” as defined by the policy, need not be a sudden, all-at-one-time event. It can include continuous or repeated exposure to harmful conditions that can, over time, result in bodily injury, including sickness and death, or in property damage.

Key Takeaway #24: The policy that applies to an occurrence is the policy in force when an accident results in bodily injury or property damage, not the policy in force when the accident itself took place. Sometimes these are virtually simultaneous. In other cases, damage may not occur—or may not become evident—until considerable time has passed.

Key Takeaway #25: Physical injury to tangible property is a negative or undesirable change—damage—to the physical or tangible aspects of some property, whether it is a change of shape, appearance, color, texture, strength, resilience, or some other aspect of its material existence.

Key Takeaway #26: In the wording of the policy, “loss of use” of tangible property does not have to be the result of the physical injury to or destruction of that property.

Key Takeaway #27: In the wording of the policy, “loss of use” of tangible property does not have to be the result of the physical injury to or destruction of that property.

Key Takeaway #28: Only tangible property—property made out of matter, with a form, that can be experienced by the five senses—can suffer “property damage,” according to the policy’s definition. Ideas, rights, easements, expected benefits, and finances may suffer a loss, but such loss is not “property damage,” by the policy’s definition.

Key Takeaway #29: A “residence employee” is someone who is hired by an insured—whether directly or through a firm—and whose employment has to do with the insured’s residence or who performs residence-type work for the insured somewhere else, but not someone whose employment has to do with an insured’s business.

Key Takeaway #30: For a dwelling to be considered the named insured’s residence premises, the named insured must reside in that dwelling at the time of an incident and it must be included as his residence in the Declarations. If he no longer lives there, there needs to be a change in his insurance policy.

CONCLUSION

This HO-3 from A-Z course began with a General Review to include the topics of risk and insurance; insurance contract characteristics; contracts; and legal liability. This set the stage for our detailed discussion on the Definitions Section of the HO-3; we studied all eleven definitions with a review of relevant case law that has helped shaped the construction and interpretation of the HO-3 policy form. You were encouraged to read through the ISO HO-3 Homeowners policy included in this course to review how the defined words appear and reappear throughout the policy. You have also participated in a number of Unit Quizzes and are now ready to take the Final Exam. The Final Exam requires a passing grade of 70% and can be taken multiple times if you don’t pass the first time.

Course Acknowledgement

By submitting any Quiz or the Final Exam you acknowledge that you are taking all of the Unit Quizzes and the Final Exam unassisted by any person, the course material or other materials. Additionally, you are acknowledging your understanding that a violation of such standards shall result in the loss of course credit and administrative sanction by the Florida Department of Financial Services. When you complete the Final Ex

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continuing education course

Risk & Insurance Defined

Risk

Perils and Hazards

Dealing with the Risk

Insurance Defined

Insurance Applications

Contracts Defined

Offer

Acceptance

Consideration

Capacity

Legality

Liability Policy Insuring Agreements

Torts

Negligence

Complaint vs. Answer

Defenses

Statutes of Limitations

Breach of Product Warranty

Insurer’s Obligations

Reservation of Rights

Damages

Section 3: “You,” “Your,” “We,” “Us,” and “Our”

“You” and “Your”

Section 4: Aircraft, Hovercraft, Watercraft, and Motor Vehicle Liability

Motor Vehicle:

Section 5: “Bodily Injury”

Section 6: “Business”

Section 7: “Employee”

Section 8: “Insured”

Section 9: “Insured Location”

Section 11: “Occurrence”

Section 12: “Property Damage”

Section 13: “Residence Employee”

Section 14: “Residence Premises”

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