Sure, I haven’t been blogging lately, but nothing gets the ol’ creative juices flowing like a “gotcha” denied claim. Today’s example in 151 Reasons Why People Hate Insurance Companies comes to us from a trial court in Manhattan. The man owned a home. He lived in the home. He insured the home. His insurance covered fire damage. He had a fire. He didn’t have insurance.
Just a bit of background and refresher: If you have read this blog for any length of time, you have probably read my discussions of the “where you reside” issue with Homeowners insurance. In a nutshell, some carriers have taken the position that, when a homeowner moves out of the home with no intention to return, all coverage on the dwelling, other structures, loss of use, liability and medical payments vanishes. This is the problem that ISO’s new “residence premises” endorsements (not available yet in New York) are designed to address.
The unendorsed ISO Homeowners policy defines “residence premises” as:
“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 …”
Back to our story. A man in New York owned a home. From July 2004 until April 2013, he insured that home with Castlepoint Insurance Co. Castlepoint was a subsidiary of the now-defunct Tower Insurance Group. It is now a subsidiary of AmTrust, which purchased Tower’s business last year after Tower ran into serious financial trouble.
The definition of “residence premises” in the Castlepoint policy was not the same as ISO’s. It said:
"8. ‘Residence premises' means:
a. The one family dwelling, other structures, and grounds; or
b. That part of any other building; where you reside and which is shown as the ‘residence premises' in the Declarations.
‘Residence premises' also means a two family dwelling where you reside in at least one of the family units and which is shown as the residence premises' in the Declarations."
So, while the ISO form covers dwellings with up to four family units, the Castlepoint policy covered dwellings with up to only two. Can you see where this is going yet?
In February 2013, a fire occurred, damaging the home. The insurer investigated the claim. It was then that they learned that the homeowner lived on the first floor, his daughter lived on the third floor, and a family friend and her son occupied the second floor. Also, each living space had its own entrance, bedroom, bathroom and kitchen. The insurer concluded that this was a three-family dwelling. Its policy defined “residence premises” as either a one- or two-family dwelling. The policy covered the dwelling on the residence premises. If there was no residence premises, than there was no coverage for the dwelling.
The insurer denied all coverage for the fire damage. This may or may not have had something to do with the cancellation of the policy two months after the fire.
The homeowner, as you might imagine, sued the insurer for breach of contract. Last November 16, the court rendered its verdict:
“It is undisputed, and the Policy is clear, that coverage under the Policy is limited to a ‘residence premises,’ which is defined under the Policy as … a two family dwelling where you reside in at least one of the family units and which is shown as the ‘residence premises' in the Declarations.’ … the affidavits from defendant's investigator and independent adjuster are sufficient to establish as a matter of law that the structural configuration of the Premises was arranged to consist of three dwelling units … Based on the foregoing, it is hereby … ORDERED that defendant Castlepoint Insurance Company's motion for summary judgment is granted and the complaint is dismissed…”
The insurer won, and the homeowner has a fire-damaged home that he has to repair with his own money. An ISO policy would have covered this loss; the policy he bought didn’t.
By now, readers may be sick of reading these words, but there is no substitute for reading the policy and understanding where the coverage gaps may lie. The opinion does not mention who the agent was, nor does it say whether the agent knew there were three households in the home. I feel confident is my assumption that lawyers for the homeowner have been asking the agent and the affiliated E&O carrier that question.
As I wrote in the first post in this series, don’t ask whether a policy will cover a loss; ask whether this policy will cover it.