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Insurance Co. of North America v. Howard (Oregon, 1982) – Rented Dwelling
Howard split time between the subject residence and another residence, moving some furniture to the other
residence, but leaving a substantial amount in the subject residence. She subsequently rented the subject
dwelling because she was planning a trip and did not want the house to be vacant for any length of time. She
testified that she did not want to give this dwelling up as a home but had not made a final decision whether to do
so or not. Two weeks after renting the home, it burned down. The homeowners policy covered the residence
“owned and occupied by the insured exclusively for residential purposes.” The U.S. Court of Appeals for the 9
th
District found that the term was a representation that did not impose a condition requiring the policyholder to
continue to live in the residence. The insurer cited Bryan v. United States Fire Ins. Co. (see above) and Howard
cited Reid v. Hardware Mutual Ins. Co. (see above). The court found Reid to be “far more pertinent and
persuasive” because Bryan expressly provided that coverage was afforded “while” occupied by the insured.
The court also opined that, “…if an insurance company wishes to have a homeowner’s policy terminate upon
rental of his home, it must so provide explicitly and unambiguously in the policy of insurance, and that a mere
statement in the policy that he is the owner and occupant is wholly insufficient for this purpose. Under any
property view of the law, a homeowner is entitled to be given specific and unequivocal notice in the insurance
policy that his coverage will be forfeited upon his rental of his home so that if a death in the family, other changes
in family or economic circumstances, or even just a desire to change his way of life, causes him to move from his
home, he may make whatever other insurance arrangements are necessary to protect the asset which often
represents all the remaining proceeds of a lifetime of labor.”
The court also made reference to a “business” exclusion later in the policy that excepted “the occasional rental or
holding for rental of the whole or any portion of the residential premises for dwelling purposes.” The court opined
that if this was an issue that a recent widow who leased her home for a one-year period while she attempted to
resolve her future plans was not in the business of renting homes.
Farmers Ins. Co. v. Trutanick (Oregon, 1993) – Rental Dwelling
The insured rented the dwelling to two successive tenants, the latter who sublet the lower floor to someone who
ran a meth lab. Subsequent damage was denied by the carrier on several grounds, including “contamination” and
the fact that the owner did not occupy the dwelling, citing the “where you reside” language. The Oregon Court of
Appeals ruled in favor of the insured on all counts and reasoned, citing the INA v. Howard case (see above) that
the “where you reside” language “is a description merely and is not an agreement that the insured should
continue in the occupation of it.”
FBS Mortgage Corporation v. State Farm (Illinois, 1993) – Rented Dwelling
The insureds bought a two-story house with separate living quarters upstairs and down and rented out the bottom
floor. The couple divorced and the husband was incarcerated but rented out the top floor while in jail. The upstairs
tenant then moved out and the incarcerated insured put someone in charge of overseeing the house which was
then totally destroyed by fire. The mortgage company foreclosed on the insureds and filed a claim with the
insurer. The insurer denied the claim because the mortgage company was aware of the change in occupancy but
failed to notify the insurer as required by the policy’s mortgage clause. The court ruled against that motion then
focused on the “where you reside” issue, opining that it was ambiguous because it wasn’t clear if it required
continuous physical presence or forbid temporary absences by the insured; that is, it fails to establish when and
for how long the insured must be physically present in order to “reside” there. The court ruled that it is generally
understood to include intent and permanency of abode in addition to mere presence. With regard to the “where
you reside” ambiguity, the court ruled that the language is unenforceable since it is inconsistent with the Standard
Fire Policy (SFP) law of the state. The only exclusion in the SFP involving occupancy provides that an insurer will
not be liable for losses occurring when “a described building, whether intended for occupancy by owner or tenant,
is vacant or unoccupied beyond a period of sixty consecutive days.”
Hill v. Nationwide Mutual Fire Ins. Co. (Georgia, 1994) – Unoccupied Dwelling
The insureds moved out of their house two months before it suffered damage in a fire. The insurer cited the
“where you reside” language and contended that it was tantamount to a clause that states coverage will cease
when the premises re no longer used as the residence of the insured. The Georgia Court of Appeals responded,
“In construing an insurance policy, the test is not what the insurer intended its words to mean, but what a
reasonable person in the position of the insured would understand them to mean. The policy should be read as a