Recently a couple consulted with me regarding their bed and breakfast. While they normally do not go beyond the nightly bed and breakfast, they recently leased out their property for a wedding. Unfortunately, a guest has claimed to have been injured at the wedding. While their contract called for the lessee to provide insurance for the wedding event, they only received a declaration of coverage page and not the entire policy. Now the insurance companies, homeowners and liability, are saying they did not provide coverage for the guest.
This situation reminded me of the importance of knowing the coverage your homeowners policy provides and the importance of business premises insurance. Reading and understanding all of the language in a homeowner’s or business liability insurance policy are not formalities to be skipped over while searching for the signature line. As with any contract, the fine print can have real and lasting consequences, and its contents will control over any contradictory verbal assurances. Taking the time to understand the terms of their policies might have headed off bad outcomes for homeowners in two recent cases.
Joan bought property consisting of a home, two barns, and other outbuildings. She also purchased a homeowners’ insurance policy that excluded coverage for any nondwelling structure that was rented out “unless used solely as a private garage.” Joan rented the barns to a commercial marina, which used them for storage of customers’ boats. When one of the barns collapsed due to a storm, Joan submitted a claim for loss of the barn.
The insurer denied coverage, prompting Joan to point out that the rental exclusion should not apply because the marina was using the barn as a “private garage.” Her point made sense as far as it went, but the insurer won because of a separate exclusion from coverage for any nondwelling “used in whole or in part for business purposes.” Joan’s main occupation was a financial analyst, and she brought in only a few thousand dollars by renting out the barn. But all that was necessary for the business purposes exclusion to apply was that the insured regularly engage in the conduct with an intent to profit.
It was significant for the court that, by failing to disclose her conduct, Joan had prevented the insurer from knowing the risks it was insuring. The purpose of a business pursuits exclusion, after all, is to rule out coverage for a whole set of risks and liabilities flowing from business activity. It did not matter that the damage to the barn was not caused by the boats that were stored there for profit.
At the heart of another dispute over homeowners’ insurance coverage was what turned out to be an erroneous assumption by the homeowners that “residents of your household” meant any persons living on the same parcel of land, even if in a different house. In this case Ken and June lived in a home. Their daughter, son-in-law and 10-year-old grandson lived rent-free in another house that was only 20 feet away and had the same mailing address. The close-knit family often shared meals and activities, and Ken and June regularly cared for their grandson.
When the grandson accidentally shot a playmate with a rifle, Ken and June submitted a claim under their homeowners’ policy, which covered “residents of your household who are your relatives.” The insurance company succeeded in arguing that it had no obligation to defend the grandson in a suit for his friend’s injuries because he was not a resident of Ken’s and June’s household.
In legal terminology, a “household” is a collection of persons living together as a unit under one roof or within a single “curtilage.” “Curtilage” is a technical term for the area next to a house that is inside the same enclosure, is used for the intimate activities of the house, and is protected from observation by passers-by. The house where the grandson lived did not meet any of these criteria so as to make the grandson part of Ken’s and June’s “household.” The four individuals in this case probably constituted a household in many respects and for many purposes, but not in the context of interpreting the homeowner’s insurance policy.
Sitting down with your insurance agent to discuss making sure you have the coverage you believe you are buying is vital. When entering a contract, particularly one prepared or furnished by another, it is a good idea to review the document carefully. A better practice would be to have your attorney review the document for you. Do not put yourself in the position of reviewing your contract after a problem or claim has arisen. It may be too late.
Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C. He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas. www.moakandmoak.com