A key issue for coverage is that the policyholder must live at the residence premises. Such premises are commonly defined in policies. Wording used in many HO forms define the residence premises as the dwelling “where you reside.” These three words create substantial consequences.
There are several instances where a named insured’s living arrangement may result in a loss of HO protection. Consider the following:
- A home with a person residing there as the result of a trust agreement
- A home’s owners are permanently residing at an assisted living facility and their children live in the home.
- A home is sold; the owners move to their new home, but permit the buyers to live in the previous resident until the closing.
It is important that agents be aware of changes in living circumstances and that policyholders report these changes promptly. Coverage gaps may be handled in various ways such as the use of a trust endorsement, voluntary acceptance of the living arrangement by an insurer to maintain coverage or replacing an HO with a dwelling fire policy. However, a basic dwelling policy lacks liability protection, so it would have to be arranged separately.
As mentioned above, coverage for losses depend upon “residence,” a term that often has a special definition. A common definition used by many homeowner insurance companies is a requirement that the policyholder be actively residing in the home. However, there has been confusion over WHEN such residency is required.
Over the years, many losses have been denied due to homeowner residency, creating litigation. Courts have not been consistent in clarifying things. Insurers, on their part, have been seeking stronger, clearer policy language. In response, policy language has been introduced in the hope of creating better understanding of how HO coverage applies with regard to residency as well as to offer options to deal with different residency situations.
Insurance language is now being added to policies that define residency to mean that, at the time of a loss, the policyholder must have been living in their home at the inception (beginning) of a policy term. A real problem occurs if, for some reason, at the policy period’s start, the policyholder was not in the home (say the home was under construction or the home was just closed on in a sale and the new owners have yet to move in).
However, insurance companies are also beginning the use of options that can be added which changes the residency definition in different ways. For instance, one option changes the requirement to the policyholder residing in the home at the time of the loss. Another option allows reference to a specific time period to define residence. That option would allow a policyholder to share residency situations with an insurer in order that both are aware of what is happening with the home. For instance, the residence definition can be changed to accommodate a temporary status, such as a policyholder’s temporary residence in a rehab center or prolonged hospitalization.
Of course, there could still be instances in which coverage may be endangered because of an unanticipated residency change, but the wider definition options should allow policyholders a better chance to make certain that coverage is available when a loss occurs. Now more than ever, it is VERY important to read your policy and, if needed, get the help of an insurance professional.