Death and Insurance (Not Taxes): Part One

Death has been on my mind recently. Partly for work reasons, but mostly for personal reasons.

Please understand that I’m neither morbid nor morose about death; I’m writing this from a pragmatic perspective.

No one likes to think about death, and even fewer talk about death. But death is a reality that cannot be perpetually avoided–regardless of the supplements taken, cardio done, or miracle cleanses endured.

Beyond life insurance, few consider the insurance implications of death.

A few months ago, my wife’s parents died in quick succession–13 days apart. As you might guess, this created a whirlwind of emotions and activity. And because of what I do, these events triggered questions around insurance–specifically homeowners and auto coverage.

Her parents had a house, personal property, automobiles, and land. Although they were both gone, the exposures to property loss and liability claims didn’t die with them. The house and personal property were subject to the same property exposures; the land still had the potential to result in injury to third parties leading to charges of negligence; and the autos continued to present both liability and physical damage exposures.

Until ownership of these assets could be transferred either through probate or trust, these insurance exposures continued for the estate–and possibly the heirs.

How, if at all, are these continuing exposures managed by the deceased’s homeowners (HO) policy and personal auto policy (PAP)? Questions to consider include:

• Do the coverage forms extend coverage to anyone other than the deceased named insured(s)?
• Are there any potential coverage gaps?

Both the HO and the PAP address death and insurance protection, but each is unique in how they respond. In this two-part series, we will review both policies in light of our prior two questions. Part one will address the homeowners policy. In the next issue of Insurance Journal, part two will address the personal auto policy

Homeowners Policy

Death and some of its insurance implications are addressed in the final paragraph of Insurance Services Office’s (ISO’s) Homeowners (HO) policy.

Paragraph G. within the Sections I and II Conditions expand or extend insured status following the death of named insureds. Coverage is not altered by this condition; who is covered following death is altered by this condition.

If the named insured or resident spouse (if not also a named insured) dies, Paragraph G.1. expands protection to include the deceased insured’s legal representative.

Protection extended to the legal representative is limited. The policy language extends protection to the legal representative to cover damage to property and only premises liability.

Property is not defined within this condition. The presumption is that coverage extends to the real and personal property of the named insured(s) now under the care, custody, and control of the appointed legal representative.

Liability coverage is limited to premises liability. Premises is not defined within this condition-based grant or extension of coverage, but a reasonable assumption is that this premises liability extends only to those premises falling within the policy’s definition of “residence premises,” which includes the premises listed in the policy and all structures on that premises.

A potential coverage gap is created by this language. Note again that coverage is extended to the appointed legal representative. Appointment of a legal representative is not immediate. Several weeks may pass before a legal representative is appointed or approved.

How does the policy respond between the time of the named insured’s death and the appointment of the legal representative?

Is any property or liability loss covered during this period?

Paragraph G.2. manages this time period by expanding the definition of “insured” following death of a named insured or spouse (if not also a named insured) to include:

• A resident of the insured’s premises who already falls within the policy’s definition of “insured”; and
• Any person who has proper and temporary custody of the insured’s property–until a legal representative is appointed.

Resident Insured

Any person who resides in the house and is otherwise defined as an “insured” by the policy retains status as an “insured” as long as: 1) the policy is in effect in the name of the deceased insured(s), and 2) the person lives in the house.

Residents who are granted insured status during the lifetime of the named insured(s) and continue protection as insureds under this condition include:

• Resident relatives regardless of age;
• Non-relative residents under 21 in the care of the named insured or a resident relative; and
• A former resident relative who moved out to attend school and is less than 24 years old.

Property and liability coverage otherwise provided by the policy is extended to these resident insureds as long as the policy is in force. But property coverage may be limited to the property owned by the resident insured–which may not include the real property.

Person(s) with Temporary Custody

Someone gains temporary custody of the named insured’s property upon death.

But insured status is granted only to that person or those persons having proper custody of the named insured’s property.

Proper is not defined in the form, so its application is subject to interpretation.

A reasonable interpretation of proper custody likely limits protection to a person or persons who are related to or have customarily cared for the named insured. Many times, this is the same person who is ultimately appointed the legal representative, but that may not always be the case.

Note that coverage for this extended insured is limited to only property losses. No liability coverage is extended to these temporary caretakers.

HO Conclusion

ISO’s HO policy appears to adequately address the various homeowners’ exposures still existing following the death of named insureds, at least to the point where other coverage arrangements can be made.

Carrier underwriting guidelines, estate plans (such as trusts), and other external factors may or will ultimately affect coverage placement, but short-term insurance issues seem reasonably managed by the HO coverage form.

In the next issue of Insurance Journal, part two of this two-part series will address how a personal auto policy may respond after the death of a named insured.