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A Serious Gap in Homeowners Insurance Coverage

A number of surveys and studies have clearly indicated that consumers are largely unaware of the potential coverage gap that may be created by certain occupancy situations.

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A number of surveys and studies have clearly indicated that consumers are largely unaware of the potential coverage gap that may be created by certain occupancy situations. The Big "I" Independent Insurance Agents and Brokers of America 'think tank' published an article in 2009, "Where You Reside" that pointed out this gap.

Using the H03 homeowners insurance policy, as the survey did, the following will show where the potential problem exists. The "Where You Reside" issue rests within three H03 policy provisions: The Coverage A insuring agreement and two definitions. "Section I-Property Coverages: A-Coverage A-Dwelling; 1. We cover: : a) The dwelling on the 'residence premises' shown in the Declarations. (definitions)-"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' on the Declarations. (definition of 'you') "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".

"One school of thought, supported by a body of case law, is that the "Where You Reside" stipulation means that, if 'you' no longer reside in the described dwelling, it isn't a 'residence premises' and therefore there is no Coverage A, B or D since each hinge on the existence of a 'residence premises'.

Webster defines 'reside' to mean "to dwell permanently or continuously". "Residence" is defined to mean "the place where one actually lives as distinguished from one's domicile or a place of temporary sojourn". Black's Law also includes the "to dwell permanently or continuously" regarding 'reside' and 'residence'..."person's dwelling place or place of habitation..with no present intention of definite and early removal".

Some potential exposure scenarios: nursing homes, relocations, divorces, death of insured. Just a few but case law lists numerous others where insurers have denied coverage. This is also not just a property insurance problem. Liability issues can also arise. (see Didion vs Auto-Owners Ins. Co. #27A02-1303-PL-232-Court of Appeals of Indiana 12/10/13-WL6448809). The absentee homeowner, who lived in Kentucky, allowed a cousin to live in the Indiana home. The cousin's dog bit a child on the face. A lawsuit was filed against the cousin and absentee owner. Subsequently a default judgement of $250,000. was entered. A year later the owner became aware because of a lien filed on the home. Coverage was denied by the insurer because of the "Where You Reside" issue. The Court confirmed that the insurer was not obligated to pay the claim.

The Big "I" insurance article "Where You Reside" can be accessed by your Independent Insurance agent should you wish to review more on this issue and to see a listing of insurance cases.

Article By: Dennis Gambill - The author is an Insurance Litigation consultant. Adjunct professor at EMC for 8 years-Risk & Insurance. 40+ years-both MGA and agency experience.

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