No Coverage For Your Children?

I got to thinking this week about families and how they can be affected by the definitions of words in insurance policies.

We all know that the divorce rate in America is very high. And we know that many divorced people have children. We also know that many divorced people with children get remarried.

The old understanding of what defines a family is changing constantly. But insurance policy terminology is not keeping up with that change, and your family may be affected at claim time.

For today, let’s look at how family structure can affect your homeowner’s, condo or renter’s insurance coverage.

Here are scenarios where family structure can be a coverage issue:

1. You are separated from your spouse. She still lives in the house you jointly own, but you’ve taken an apartment.
2. You and your spouse have joint custody of the children.
3. Your second wife’s 22 year-old unmarried daughter lives with you at your home. She owns a Bichon Friese dog that bites the mailman, who sues you.
4. Your elderly parents move in with you.
5. (Actual case I worked) Your wife’s college roommate moves from California to Atlanta, looking for work. You take her in with the understanding that it’s only for three months. In the second month, the roommate’s mother back in California has a debilitating stroke, and also moves into your home.

Look with me at the HO-3 All Risk Homeowners Policy, the HO-6 Condominium Policy and the HO-4 Renters Insurance Policy, all from the Insurance Services Office (ISO). The ISO is the standard language for nearly all insurance policies.

First, we have to lay some groundwork by making sure we all understand some of the word definitions in the policies. You might consider this stuff boring, but know this: if the insurance company takes the time to define a particular word, then that word has a special meaning. If you or your situation don’t qualify under the definition, you won’t be covered.

In all three policies, “Insured” means you and residents of your household who are:

your relatives: or

other persons under the age of 21 and in the care of any person named above.

“You” and “your” refer to the “named insured” shown in the Declarations and the spouse if a resident of the same household.

Definitions for terms like “residents,” “household,” “relatives,” and “in the care of” are not to be found in the policies. Consequently, the courts have had a lot to say about the definitions of those terms. I could list court cases, but I don’t want to bore you. If you need to know the specific cases, let me know and I’ll get them for you.

Let’s take each one of the examples above and expand on them.

1. You are separated from your spouse. She still lives in the house you jointly own, but you’ve taken an apartment. The policy is in both your names, but you don’t live there. You don’t qualify as a “resident.” If you have a claim, the insurance company could try to deny coverage to you because you don’t live there, even during a legal separation.
2. You are divorced from your spouse and have joint custody of the children. The children go back and forth between your house and your ex-spouse’s house. One of the children causes a serious injury to another neighborhood child while at your home. In the Liability portion of the policy, the insurance company has a duty to provide legal defense for the claim and any lawsuit. But is the child an “insured?” The insurance company could argue that the child spends more hours per week at your ex-spouse’s residence than at yours, and deny coverage to you. That could expose you to a large lawsuit settlement, and could bankrupt you. Take heart, though. There is a court case in which the Court decided that the children had dual residency,and decided that the child was covered under both homeowners policies.
3. Your second wife’s 22 year-old unmarried daughter lives with you at your home. She owns a Bichon Friese dog that bites the mailman, who sues you. Is the daughter covered? Well, she’s a relative, so she’s covered. How about the dog bite lawsuit? Congratulations, you’re covered again. The policy states that the dog bite is covered. But, if the daughter had a boyfriend who stayed with her, no coverage for anything the boyfriend does that causes a loss.
4. Your elderly parents move in with you. But, they are healthy, and financially self-sufficient. They spend 7 months each year in their Florida winter home, and use your address as their legal address. They are not “in your care.” Are they covered under your policy? Yes, they qualify as “insured” because they are relatives. But, in the case of a claim, the insurance company could argue that they are not “residents.”
5. (Actual case I worked) Your wife’s college roommate moves from California to Atlanta, looking for work. You take her in with the understanding that it’s only for three months while she gets a job and finds an apartment. In the second month, the roommate’s mother back in California has a debilitating stroke, and also moves into your home. The roommate gets up one morning after you and your wife have left, and gets ready in the bathroom. She lit a candle and placed it on the top of the fiberglass garden tub. She forgets to blow out the candle and leaves for a couple hours, while her wheelchair-bound mother is at home alone. The candle ignites the fiberglass tub, causing a $135,000 fire. Mom gets out safely. In this claim, the insurance company actually referred the claim to their Special Investigations Unit (SIU) to try and prove that the homeowners committed arson. The insurance company spent over THREE MONTHS on their investigation, during which they would not tell the homeowners anything. The insurer took recorded statements from the homeowner, his wife and the roommate...none of whom were at home when the fire started. The insurer never asked for any information from the mother, who was actually inside the house when the fire started. Further, they would not pay the homeowners any Additional Living Expenses. They denied coverage to the roommate and her mother for their personal property destroyed in the fire, because they did not qualify as “insured.” The delay nearly bankrupted the homeowners. I represented the homeowners, and we finally got a settlement for them after months of strenuous negotiation.

So, you can see that undefined words in your policy can cause you headaches, even litigation. Custody of your children doesn’t necessarily mean that they qualify as residents. Being a resident of a dwelling doesn’t automatically qualify a person as a resident of a household for insurance coverage.

Do you have a story about how the definition of an insurance term caused you problems, or caused the insurance company to deny your claim? Let’s discuss it in the blog.

Thanks for reading this posting, and here’s a toast to clear definitions!