By Roy C. McCormick

The inclusion of children who are residents of their parents' households as insureds is an important feature of homeowners policy coverage. However, there are situations in today's living conditions when the line of demarcation between coverage and non-coverage is blurred. Guidelines are provided both by policy provisions that have been carefully drafted and by the courts.

Pertinent policy provisions and claims under both Section I property insurance and Section II liability insurance warrant review, with special attention to the latter because of the potential for major financial loss. The following are among recent court decisions that show the importance of discussing these matters with homeowners insureds who have grown children:

* Rice et ux. v. State Farm Fire and Casualty Company. Alabama Supreme Court (1993).The 30-year-old son of the named insured had lived for seven years in a mobile home, owned by his parents and situated on their land about 100 feet from their house. He did not pay rent but did pay the mobile home utility bills. He had never spent a night in his parents' home during the seven years. He did not have a key to it and they did not have one to the mobile home. He said that he moved into the mobile home for privacy. They stated that he "maintained his life separate and apart" from them.

The son's pit bull attacked and injured a gas deliveryman who was making a delivery to the mobile home. The injured man and his wife sought to collect a $400,000 judgment, obtained against the son, from his parents' homeowners insurer. The high court concluded: "Although he maintained a family relationship with his parents, there is no factual basis upon which (the son) might be considered a 'resident' of his parents' household." The judgment of the trial court was affirmed in favor of the insurance company and against the third-party claimants.

* Still v. Fox et al. Hamilton County, Ohio Municipal Court (1994). A 43-year-old man, who owned his own residence, vacationed frequently with his father at a cabin that the latter owned in Canada. The son stored fishing and boating equipment at the cabin. While at the cabin, he borrowed a snowmobile from a neighbor and wrecked it. Claim was made under his father's homeowners policy when the neighbor secured a $4,000 judgment against him.

The insurer denied liability on the ground that the son was merely a visitor at his father's cabin and was not a resident of his household. In the litigation that ensued, the court concluded that the son was an emancipated adult, was not a resident of his father's household and was not an "insured" under his father's policy. Judgment was rendered for the insurer.

* Freudenberger v. Allstate Insurance Company et al. SD California (1996). A woman pedestrian was injured by the 19-year-old son of homeowners insureds. He accidentally knocked her down while riding his skateboard. Her legal demands against him and his parents were referred to the parents' insurer.

The insurance company denied liability on the grounds that the son was an emancipated adult and had his own residence for at least six months. He paid his residence rent and taxes, bought his food and maintained his own car. He did use his parents' address as his mailing address, stored some personal items in their home and occasionally spent the night there. The parents sued their insurer when the injured woman was awarded $123,000 in an action brought against their son.

The court found that the son was not an insured person because he did not physically reside with his parents. It concluded that the policy was not applicable in the circumstances.

The Court of Appeals of Ohio, in Western Reserve Mutual Insurance Company v. Campbell (1996), underscored an important point (noted above) in the determination of whether or not a grown person is a member of his/her parents' household. It stated that using their home as a mailing address is not sufficient to establish residence.

The scope of coverage for minor and adult children under their parents' homeowners policies, with respect to personal property coverage and personal liability coverage, rests on the policy definition of "insured." Policies used by insurers in general, including forms drafted by the Insurance Services Office (ISO) and the American Association of Insurance Services (AAIS), define the term with similar intent and effect, though language may vary.

The definition of "insured," in pertinent part, includes relatives who are residents of the named insured's household. Children, brothers and sisters, parents and grandparents are examples. "Relative" is described in popular dictionaries as "a person who is connected to others by blood or marriage." It must be kept in mind that a visiting relative is not an "insured" since "a resident is more than a visitor or transient, but lives at a place with additional attachments of such significance as to render that person a more or less consistent part of the community." (Puente v. Arroyo, 1979 Commerce Clearing House Fire and Casualty Cases, 1472.)

It is notable for our review that "insured" is also defined in homeowners policies to include other persons under the age of 21 in the care of the named insured or a resident relative, and who are residents of the household. A foster child or a ward of the named insured is an example.

Personal property coverage provided by a homeowners policy is subject to the same definition of "insured" as is applicable to personal liability coverage.

An agent who has cared for a family over the years can further serve the valued insureds by inquiring where the kids are and what they are up to. Advice that a policy no longer covers one or more, and that they need their own insurance, would be well received when circumstances warrant. Anyway, with the unprecedented wages young people are receiving on their first jobs today, they can easily afford the premium and will be proud of this testimony to their independence! *