13,000 properties needing property insurance

[hannah.cca]

I am doing a work for Company A that provides a home rental listing service and connects home owners with people who want to rent their home for 1-30 days. Company A does not own the homes, but wants to provide an insurance option to cover any personal property liability for the home owner during the rental of the unit incase anything is stolen or damaged when the home owner is away. This insurance plan would be supplemental to any existing home owner’s (or renter's) insurance.

Company A would like to automatically cover 10k in personal property liability insurance for around 13,000 listings in USA. They also have about triple the listings abroad. Can anyone help me with this scenario?

Thanks,
Hannah

[jimmyr1978]

This is most likely going to be a manuscript form. A Lloyds syndicate is probably your only option. Find a good habitation property underwriter at a national wholesaler (AmWins, Crump, etc.) to work with.

Also, please clarify: Is it your intention that the homeowners be insureds (first person coverage for property); or that the renters be the insureds for any liability that could occur through their use of the owners' properties?

There are actually some "tenant negligence" programs that are designed for large apartment portfolio managers/owners. These are blanket "renters insurance" policies that pay the landlord first before paying the tenant; there are legal issues with the coverage in select states. That said, this does not fit exactly into those programs, though it's not too far from the intent, i.e., protecting the landlords against financial loss resulting from a tenant's negligence. Bader and Effective Coverage are the two main players that I know about in this world. https://www.effectivecoverage.com/app/o ... o?act=view

Good Luck! Sounds challenging!

[Rock54]

The homeowner's/renter's/dwelling owner's policies have a "other insurance" clause that presents a problem for the owner or renter settling a claim with their insurance company when there is another insurance company providing supplemental coverage. The reason for the "other insurance" clause is the owner's or renter's insurance company controls the claim settlement process and to prevent profiting from collecting on multiple insurance policies. Therefore, your customer may experience a hassel settling a claim with their insurance company because their insurance company and the supplemental insurance company are trying to figure out which one is going to pay or how much each should pay.

The conventional business of insurance is for the owner of the property to obtain insurance. It is unconventional for someone to purchase insurance for property owned by others unless you are in the business of taking control of someone else's property such as a transportation company, dry cleaning business, watch or jewelry repair business. The $10,0000 suppplemental property insurance policy would be considered unconventional and can become very expensive insurance.

Rather than considering insurance for someone elses property a more conventional approach would be liability insurance. Contingent liability policies exist where they pay in the event other liability insurance is cancelled or non renewed. Or, a excess liabilty policy that pays after the other liability insurance has paid. After this insurance program has been in existence for a few years it may be possible to expand it to include $10,000 of property insurance owned by others for a reasonable cost.

[RKunz2]

Tricky scenario and as you can tell by the responses, not an easy solution. Funny that I ran into this question because I just had this come up a couple weeks ago. The common example is people renting out their primary residences for an event like, Superbowl, or the Olympics. I turned to Chris Amrhein of American Agent & Broker magazine. He offered these two items from the Big "I" University.

QUESTION - "As a personal lines underwriter, many agents are contacting me saying that their policyholders are planning to rent their home for the weekend since the Super Bowl is in town. If folks do rent their home for the weekend, does their homeowners policy cover them?"

ANSWER - This question has come up many times — Atlanta in 1996 with the Olympics; Jacksonville in 2005 for the Super Bowl; Washington D.C. for the 2009 presidential inauguration, and other times, too. The answer to your question of coverage is, as is often the case, “Maybe!”

The key coverages to analyze under the standard homeowners policy are Section II (liability and medical payments), Coverages A, B, and C. Before looking at the specifics under those coverages, I think it’s important that we touch on another common situation whereby homeowners move out of their home permanently (or for extended periods of time) and rent the house to others. This may be due to a job change, health concerns causing them to move into an assisted living facility, economic reasons, or any other reason.

Being an underwriter, you know that policyholders often fail to notify their agent of a change like this. In a situation where the homeowner does not actually live in the house any more, there is one train of thought (supported by some court cases) that since the policyholder no longer resides in the home, there is no Coverage A under the homeowners policy. We have an article on our web site titled “Rent Your Home – Void Your Insurance Policy?” addressing this specific issue and it can be seen by clicking here.

Let’s look first at Section II of the homeowners policy where this exclusion is found:

2. "Business"
a. "Bodily injury" or "property damage" arising
out of or in connection with a "business"
conducted from an "insured location" or
engaged in by an "insured", whether or not
the "business" is owned or operated by an
"insured" or employs an "insured".

This Exclusion E.2. applies but is not limited
to an act or omission, regardless of its nature
or circumstance, involving a service or duty
rendered, promised, owed, or implied to be
provided because of the nature of the
"business".

b. This Exclusion E.2. does not apply to:
(1) The rental or holding for rental of an
"insured location";
(a) On an occasional basis if used only
as a residence;
(b) In part for use only as a residence,
unless a single family unit is
intended for use by the occupying
family to lodge more than two
roomers or boarders;

Said affirmatively, there is Section II coverage if the dwelling is rented on an occasional basis, or if it is rented in part. Since the policy does not define “occasionally,” we’d look to the usual and customary definition found in a dictionary: “at times; from time to time; now and then.” Assuming that renting a house for a weekend (or perhaps a week or two during the 1996 Olympics) fits the definition of occasionally, the homeowners policy would protect the policyholder for liability and medical payments claims resulting in bodily injury and/or property damage.

Likewise, if just a bedroom were rented, coverage under Section II applies. The caution is, of course, to make certain that this type rental activity isn’t something the policyholder does more often than “once in a blue moon” as the saying goes. If the owner rented the house more often than “when the Super Bowl is in town,” the exclusion would likely apply. Most insurance professionals consulted feel that Section II applies in your specific situation.

Looking at Coverage A, there are no exclusions of concern. If, for example, there were a fire at the house while being rented, Coverage A applies. Of course, good risk management for the policyholder is to know who is renting the house, perhaps have an agreement drawn up by an attorney, and require the renters to produce evidence of a homeowners or general liability policy.

With Coverage B, there is an issue of concern. The standard HO-3 policy has this exclusion under Coverage B:
2. We do not cover:
a. Land, including land on which the other
structures are located;
b. Other structures rented or held for rental
to any person not a tenant of the dwelling,
unless used solely as a private garage;

Therefore if the insured had (for example) a guest house on the property that had never been rented before and decided to rent it just for a few days for the Super Bowl, there would be no Coverage B in the event of a loss. This could be viewed as a “fluke” in the policy since the policyholder could rent the house and have Coverage A, but not have Coverage B if a detached structure were rented…even just for a day. This exclusion for Coverage B can be overcome via the HO 04 40 – Structures Rented To Others endorsement.

Under Coverage, C one specific exclusion merits concern. In the standard HO-3 policy, Coverage C is named peril coverage, with theft being one of the covered perils. The policy states this when addressing theft as a covered peril:

9. Theft
a. This peril includes attempted theft and loss
of property from a known place when it is
likely that the property has been stolen.
b. This peril does not include loss caused by
theft:
(1) Committed by an "insured";
(2) In or to a dwelling under construction,
or of materials and supplies for use in
the construction until the dwelling is
finished and occupied;
(3) From that part of a "residence premises"
rented by an "insured" to someone other
than another "insured"; or

So, suppose the policyholder rents the entire house out and the renter steals personal property from anywhere in the house. There is no coverage under the HO-3. On the other hand, suppose that the policyholder stayed in the house for the rental period, but rented out only a part of the house…perhaps a bedroom or upstairs loft. If the renter stole personal property from those areas, there would be no coverage. There would be, however, coverage if only the loft was rented and the renter stole personal property from another portion of the house. If coverage is provided under the HO-5 form (or the HO-3 with the HO 00 15 endorsement), personal property coverage is broadened from “named perils” to “open perils” and the theft exclusion is not present there.

So, there you go. Next time the Super Bowl is in town (15 years maybe!) feel free to rent your house, make a few bucks, but be cautious of whom you are renting to and the coverages provided under your policy. I hope your team wins!

[RKunz2]

PART TWO -


We all know that you can rent part of your house on a permanent basis and all of your house on an occasional basis and still have MOST of your HO insurance intact. But what if you rent all of your house on a more permanent basis? Clearly, there's no liability coverage, but surely there's coverage if your house burns down...or is there?

We all know that there's no direct property damage coverage if an "other structure" is used for business, but no such exclusion applies to a business operated out of your home...it would seem to be unconscionable that an insured could lose their home because of this. Certainly, there's no liability coverage, but definitely there's direct property damage coverage. Surely the same thing applies if you've rented your home to someone...or does it?

What about people that move and "temporarily" rent their home while it's up for sale? There are vacancy and unoccupancy restrictions for certain losses (e.g., glass breakage, V&MM, and frozen/bursting water pipes), but nothing more...or is there? For a chilling look at this exposure, keep reading (and make sure your E&O carrier is on your speed dial)....
Recently, our "Ask an Expert" service received the following email from an agent:

"I wrote an HO-3 for an insured who subsequently moved out and rented the house to someone else on a full time basis. My question is, will the HO policy cover claims since the house is rented out full time? Obviously, I'm aware of the situation, but what if the insured had done this believing that his insurance would continue in force and had not contacted me?"

First of all, there is clearly no liability coverage. The ISO HO3 policy extends liability coverage only to occasional rentals (e.g., renting your home once a year for three days during the Daytona 500) and rentals in part (e.g., renting a room to a boarder). But, how about Section I direct property damage? The agent's revelation is that, upon reading the policy, he now has doubts that coverage exists for the following reasons:

The grant of coverage under Perils Insured Against is "We cover risk of direct loss to property described in Coverage A....", AND

Coverage A is defined as follows: "We cover the dwelling on the 'residence premises'...." [emphasis added], AND
The Definitions section of the policy defines "residence premises" to be: "The one family dwelling...where 'you' reside and which is shown as the residence premises in the declarations...." [emphasis added], SO

Since the insured no longer resides in the house, it isn't a "residence premises," the dwelling isn't on a "residence premises," and there is no coverage!

Whether this is the intent of the policy or the result of a literal reading of the contract remains to be seen, but I LIKE the way this agent thinks...not blindly accepting custom and hearsay. So, let's explore this a bit deeper by using some reason and consulting some court decisions.

Black's Law Dictionary defines "residence" to include "Personal presence at some place of abode with no present intention of definite and early removal and with purpose to remain for an undermined period, not infrequently, but not necessarily combined with design to stay permanently. Residence implies something more than mere physical presence and something less than domicile."

Does "no present intention of definite and early removal" mean that residence ends when you "intend" or decide to move? Surely not. Clearly, though, in this case the dwelling is no longer the insured's domicile and, thus, no longer his residence.
Black's defines "reside" (since that's the word that is used in the policy) to mean "Live, dwell, abide, sojourn, stay, remain, lodge...to dwell permanently or continuously...." Clearly not the case in this situation.

It sounds pretty clear cut...when you move out with no intention to return, you no longer reside there. As the agent indicates, according to the policy definition, you then have no "residence premises" and no Coverages A, B or D...dwelling, other structures, and additional living expenses each hinge on loss involving the "residence premises." Fortunately, no such condition applies to Coverage C since coverage is generally provided on a worldwide basis.

From the standpoint of case law, courts are split on this issue. Here is a partial list of decisions that read this policy provision literally to exclude coverage, as noted above:

• Bryan v. United States Fire Ins. Co. (Texas, 1970)
• Fisher v. Indiana Lumbermens Mutual Ins. Co. (Texas, 1972)
• Doyle v. Members Mutual Ins. Co. (Texas, 1984)
• Allstate Ins. Co. v. Goldwater (Michigan, 1987)
• Epps v. Nicholson (Georgia, 1988)
• Shepard v. Keystone (Maryland 1990)
• Nancarrow v. Aetna Casualty & Surety Co. (Arkansas, 1991)
• Georgia Farm Bureau Mutual Ins. co. v. Kephart (Georgia, 1993)
• Heniser v. Frankenmuth Mutual Ins. Co. (Michigan, 1995)

In the Bryan case (which is often cited by other courts in denying coverage), the insured alleged that he had only temporarily relocated and planned to move back at some point. In our scenario, the insured clearly does not plan to return. The Heniser case was decided by the Michigan Supreme Court in a lengthy decision (citing, but disagreeing with, several of the cases cited below) using the ISO HO 00 03 04 91.

The Kephart case was interesting in that the wife was the named insured on the policy and, due to a divorce, she moved out. When the divorce became final and her ex-husband was residing in the dwelling, under the terms of the policy, "you" no longer resided there because the husband was not a resident spouse of the named insured, his ex-wife.
We favor, however, the following decisions that have found coverage:

• O'Neil v. Buffalo Fire Ins. Co. (New York, 1849)
• Joyce v. Maine Ins. Co. (Maine, 1858)
• German Ins. Co. v. Russell (Kansas, 1902)
• Reid v. Hardware Mutual Ins. Co. (South Carolina, 1969)
• Insurance Co. of North America v. Howard (Oregon, 1982)
• Farmers Ins. Co. v. Trutanick (Oregon, 1993)
• FBS Mortgage Corporation v. State Farm (North Dakota, 1993)
• Hill v. Nationwide Mutual Fire Ins. Co. (Georgia, 1994)

In each of the above cases, the primary basis for the decision in finding coverage was that words such as "where you reside" were words of description and not a continuing warranty of occupancy. (The Heniser case, though, elected to find that the contract wording involved an issue of coverage and not warranty or representation.)

We favor these cases because, in general, they appear to be more applicable to this specific scenario, they include more precedent-setting state Supreme Court and U.S. Court of Appeals decisions, they span a broader time period (almost 150 years) and geographic area, and they support a more conscionable conclusion that an insured should not suffer a catastrophic loss because of a "technicality."

In our opinion, if the intent of the policy is to exclude coverage under these circumstances, the contract could more clearly communicate that complete nonresidency and/or rental suspends or voids coverage. If that was the case, possibly none of the litigation above would have been necessary. For example, in one proprietary insurer form, an attempt is made to clarify an absolute exclusion of ANY direct property damage (Coverages A, B, or C) if, at the time of loss, the insured does not "occupy" the residence premises for dwelling purposes. While this still seems to be a potentially onerous exclusion, given the potential magnitude of an uncovered Coverage A loss and the usual worldwide coverage for personal property, at least an effort is made to clarify the insurer's intent.

However, about the only thing that is clear at this time is that this issue is unclear. It would be advisable if insureds were cautioned about the above and, in the event of the sale or rental of a home, as long as the insured maintains an insurable interest in the property (which can exist even after a sale under some circumstances), coverage should be IMMEDIATELY moved from the Homeowners program to the Dwelling Fire program.

Perhaps an enterprising insurance company will develop an endorsement similar to the HO6 Unit-Owners Rental to Others (HO 17 33) endorsement that provides coverage for the regular rental of a condominium unit. Even better would be an endorsement or policy revision that grants an explicit coverage grace period until policy expiration if an insured rents or vacates a home when relocating. This is an extremely common occurrence and to face an economic "KO" (and an admittedly "TKO") would seem a high price to pay.

Update:
Looks like an HO 17 33-comparable endorsement WON'T do the trick. To take a look at an actual (denied) claim involving this policy language and a rented condo, continue on with this article:
Renting Condos (and Homes) to Others

[jtownagent]

I think the answer is not insurance, but DAMAGE DEPOSIT, and proper screening of tenants by a real estate professional with proper E&O coverage.

[RKunz2]

I think the answer is not insurance, but DAMAGE DEPOSIT, and proper screening of tenants by a real estate professional with proper E&O coverage.

Well said, jtownagent! But, a real estate professional with proper (read: valid) E&O coverage is something that must be verified these days.

Speaking of E&O (and a shameless plug for a product that just got annouced today) -

Markel Programs, Burns & Wilcox Partner to Offer Real Estate E&O Program - http://www.insurancejournal.com/news/na ... 196600.htm

Any broker interested should contact the Scottsdale office of Burns & Wilcox.

[hannah.cca]

Thank you all for your suggestions! This is a bizarre request and you all have been extremely helpful in understanding the possible routes we could take. Thank you!