DO YOUR HOMEOWNERS CLIENTS “RESIDE” AT THEIR “DWELLINGS?”?

 A critically important question for coverage

 Two court cases from 2023 serve as a stark reminder to

producers that it’s not enough for a policyholder simply

to own a home listed on the policy declarations.

By Joseph S. Harrington, CPCU

As an insurance professional, have you ever wondered what a “mandatory” endorsement is? Who mandates it? What happens if a mandatory endorsement isn’t added to a policy?

Don’t be embarrassed if you can’t answer those questions. They refer to policy form development and the filing process, only indirectly affecting agents and brokers. Any “mandate” on producers comes as a directive from a carrier to add an endorsement to every applicable policy.

Mandatory endorsements are issued by insurers and their advisory organizations to maintain an intended scope of exposure when new trends in claims threaten to broaden or (rarely) restrict coverage in a way that no longer corresponds to the underlying loss costs. Unanticipated types of claims could make filed rates inadequate.

That’s what happened, for example, when property damage claims for the presence of mold began to arise in the late 1990s. Mandatory mold exclusions or limitations were implemented until mold losses could be addressed within the basic policy forms.

Mandatory endorsements are usually an interim step that allow admitted insurers to maintain intended levels of exposure until the next comprehensive revision of policy forms for a line. Typically, the provisions of mandatory endorsements will be incorporated into revised base policies and the endorsements retired.

Residence premises

Independent insurance agents may have thought they’d put an issue behind them when, in 2015, the Insurance Services Office (ISO) introduced a mandatory homeowners endorsement to refine the definition of “residence premises.”

In addition to a single-family dwelling or a single unit in a 1-4 family residential structure, a residence premises would also include:

That part of any other building where you reside . . . on the inception date of the policy period shown in the Declarations and which is shown as the “residence premises” in the Declarations.

With the endorsement as written, homeowners property coverage would respond to damage (by a covered peril) to a declared dwelling where the insured resided on the policy’s inception date. This was a rare example of a mandatory endorsement that arguably expanded insurers’ exposure, as there was no explicit provision that the insured be residing in the same location at the time of the loss.

Advocated by the Independent Agents and Brokers of America (IIABA), the endorsement was devised to address situations where insureds who were absent from their homes for legitimate reasons sometimes found themselves without coverage for major damage.

Under the endorsement, if a carrier accepted premium to insure a residence, the carrier was expected to cover an insured loss to it. To deny coverage (absent another exclusion), the carrier would have to demonstrate that the insured was not residing there when the policy was initiated.

It was a departure from common practice, then, when ISO’s 2022 Homeowners revised the definition of “residence premises” to include:

“That part of any other building where you reside; and which is shown as the ‘residence premises’ in the Declarations.”

The forms revision includes no mention of the insured’s residential status at the inception of the policy; thus, the language of the “mandatory” endorsement was not fully incorporated.

Instead of being retired, the 2015 endorsement, which originally applied in all states, remains mandatory in some states. Whatever the reason for that, producers and buyers of homeowners insurance must clarify for themselves how far the definition of “residence premises” extends, and what becomes of that coverage if the insured is found to be residing elsewhere.

Court rulings

The question of what it means to “reside” at a “dwelling” or a “residence” has long vexed homeowners insurers and policyholders. And it continues to produce unpleasant surprises for each.

Two court cases from 2023 serve as a stark reminder to producers that it’s not enough for a policyholder simply to own a home listed on the policy declarations. Insureds should be reminded that the coverage they purchased may depend on whether they are determined to actually live there.

In a case in Illinois, an insured was in the process of renovating a home she had inherited but not occupied when it was destroyed by fire. Coverage was denied based on the fact that the insured never resided there. A state appeals court upheld the denial, ruling that the policy unambiguously required that the owner reside in the home for coverage to apply.[1]

Much the same occurred in a Wisconsin case, in which the ISO residence premises definition endorsement was in place.

In that case, the insured had purchased an abandoned and uninhabitable duplex unit from a municipality. The owner installed electricity and some household furnishings, and stayed overnight on several occasions, but coverage was denied because she maintained a primary residence elsewhere at the inception date of the policy and when the loss occurred.[2]

Against those two “wins” for carriers, there was a case out of Montana where the insured prevailed over the carrier in a dispute over what constituted a dwelling at a location with several structures.

While the location included a house where the owner slept, he also made regular use of a separate structure for daily activities. After that structure was destroyed by fire, the insured claimed it qualified as a “dwelling” where he resided and should therefore be covered up to the dwelling property limit. The insurer countered that the damaged building was not a dwelling but rather an appurtenant structure covered under the (lower) limit for other structures.

Courts found for the insured in this case, ruling that the meaning of “dwelling” was ambiguous in the context of this claim, and that the insured’s activities at the damaged structure made it eligible for coverage under the dwelling property limit.[3]

So, what seems to be obvious is not always the case. When someone asks for a homeowners policy, make sure you know—and they know—where they really live, and why it matters.

[1] Dardar v. Farmers Auto. Ins. Ass’n, 2023 Ill. App. 5th 220357 (Ill. App. Ct. 2023)

[2] Currie v. State Auto Prop. & Cas. Ins. Co., 20-cv-1342 (E.D. Wis. Jul. 27, 2022)

[3] Safeco Ins. Co. of Am. v. Halvorson, No. 22-35332 (9th Cir. May. 23, 2023)

The author

Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P-C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.