Does renters policy cover owned house?

Does renters policy cover owned house?

Barry Van Sickle purchased a house in Stevensville, Montana, in 2001. In 2010, Van Sickle put the house up for sale and completed a standard Montana seller’s property disclosure statement. The disclosure requested the seller to “Please describe any Adverse Material Facts concerning the items listed or other components, fixtures or matters,” followed by a request for information about the “BASEMENT: (Leakage, Flooding, Moisture or evidence of Water, and Fuel Tanks).” In the blank next to this request Van Sickle wrote “N\A.”

On January 28, 2014, Jessica Huckins conveyed an offer on Van Sickle’s house. Van Sickle accepted the offer on January 29, 2014, and the disclosure was provided to Huckins. Prior to closing, Huckins paid for a home inspection and inquired about homeowners insurance costs. The inspection revealed that there was an “unconventional” sump pump in the basement, and the homeowners insurance quotes indicated that a claim for flooding in the house had been made in 2011. Huckins closed on the transaction in March 2014 and, on entering the house after the closing, she found the basement flooded.

Huckins filed a complaint against Van Sickle and his real estate agent. The complaint alleged that Van Sickle should have disclosed the previous basement flooding problems and set forth claims of negligent misrepresent-ation, negligence, fraud and fraudulent misrepresentation, constructive fraud, violations of the Montana Consumer Protection Act, deceit, breach of the covenant of good faith and fair dealing, and punitive damages.

At times related to the events  stated in the complaint, Van Sickle held three policies through USAA. From 2001 to January 3, 2014, he was covered by an annually renewing homeowners policy with identical terms each year (pre-2014 policy). When the policy renewed for the January 4, 2014, to January 4, 2015, term, USAA added additional exclusions, including one that excluded coverage for damages “arising out of your failure, intentionally or unintentionally, to disclose information regarding the sale or transfer of real or personal property” (2014 policy). Both policies included personal liability protection that provided both indemnity and a defense “[i]f 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.” In addition to the homeowners policies, Van Sickle, who at the time had moved to and rented a house in California, had a renters policy with USAA that ran from March 15, 2014, to March 15, 2015.

Van Sickle tendered Huckins’ complaint to USAA, whose representative conducted a telephone interview with Van Sickle and his wife, Michelle. After the interview, USAA sent a letter to Van Sickle denying coverage for the claims stated in the complaint, stating: “[t]he allegations are concerning alleged misrepresentation and concealment of material facts concerning the sale of property,” and that the policy required an “occurrence as defined”  to provide coverage, noting that  “[m]isrepresentation and concealment is not an accident and does not give rise to an occurrence.” USAA’s letter also cited the renters policy’s exclusion for “property damage to property owned by an insured.”

Van Sickle then settled the underlying litigation with Huckins by way of a consent judgment of $300,000 and Van Sickle’s assignment to Huckins of all claims under his policies in exchange for a covenant not to execute. The court entered the consent judgment on June 25, 2015. Huckins then brought suit against USAA, stating claims for breach of duty to defend Van Sickle, breach of contract, violations of the Montana Unfair Trade Practices Act, breach of the covenant of good faith and fair dealing, and punitive damages. Huckins and USAA moved for summary judgment on the primary issue of whether USAA had breached its duty to defend Van Sickle. The court reasoned that the claim did not constitute an “occurrence” as defined by Van Sickle’s policies and that USAA had therefore not breached its duty to defend under either the homeowners policies or the renters policy. Huckins appealed.

On appeal, Huckins argued that USAA breached its duty to defend because USAA deemed Van Sickle’s acts to be intentional and not an accidental “occurrence” covered by the policy, even though Van Sickle reported to USAA in the interview that he did not understand the scope of the information the disclosure was asking him to supply about the property. Huckins also argued that the lower court erred by resolving any doubt about the allegations as stated in the complaint in favor of USAA instead of in favor of coverage.

USAA argued that the complaint “failed to assert ‘bodily injury’ as defined in the policy” and that the court correctly concluded that there was no “occurrence” under either the homeowners policies or the renters policy. USAA also argued that, although the court reached the right result on these grounds, the “failure to disclose” exclusion in the 2014 policy provided an unequivocal demonstration that the facts alleged in the underlying lawsuit did not fall within the policy’s coverage, and the renters policy was not applicable to the house in Stevensville.

According to the appellate court, even a strict and narrow reading of the failure to disclose exclusion clearly excluded coverage for an insured’s failure to disclose information “regarding the sale or transfer of real … property.” As to the 2014 homeowners policy, the court held, USAA had no duty to defend Van Sickle.

With respect to Van Sickle’s renters policy, the court noted that, although the 2014 homeowners policy contained an owned-home exclusion, Huckins’ claim was made after she became the owner of the house she had bought from Van Sickle. The court noted that in an indemnification case the exclusion would be a valid reason for USAA to deny coverage, but that it did not excuse the insurer from its obligation to defend Van Sickle in the complaint filed by Huckins. The court stated: “If an insurer believes a policy exclusion applies, the prudent course of action is to defend under a reservation of rights and file a declaratory action to resolve the coverage question.”

The lower court’s decision was reversed and the case remanded for further proceedings.

Huckins vs. United Services Automobile Association-Supreme Court of Montana-June 13, 2017- DA 16-0561.