Imaging after experiencing a loss at your home, you discover that the insurance company has legitimate grounds to legally deny your claim. There is a gray area in most homeowner insurance policies that the Independent Insurance Agents and Brokers of America estimates could effect over 150,000 Americans’ insurance policyholders on any given day.

Any insurance policy you take out is a contract. In simple terms, in return for premiums you pay, the insurance company agrees to pay for your loss when one should occur. Then in the fine print are what is covered or is not covered, plus stipulations, obligations, or activities required of you in that contract. Failure to comply with obligations, inappropriate actions you may take, or changes in the conditions present from when the policy was written are all grounds for terminating your coverage—with or without notice to you.

Some things are logical and easy for most people to understand like if you fail to pay your premiums, coverage will be terminated.  But every so often there’s language that leaves coverage in jeopardy for reasons you might not expect. A particular case in point: what happens when a home is vacant, or unoccupied? When does the insurance company have the right to terminate coverage if it is unoccupied?

First point to understand there is a difference between vacant and unoccupied. If you spend 3 months in Florida for the winter, your home would be unoccupied during that time. When you move out of your home taking all possessions, your home is then vacant. There is pretty clear policy language in a policy relating to coverage for a vacant home. With most companies, coverage is automatically reduced or terminated as soon as the structure becomes vacant.

Now for the gray area. A family friend of retirement age went into a nursing home for his memory issues. His wife continued to live in the home until a car accident put her in the hospital and then in a rehab facility for a total of 25 days. While in the rehab facility, a window was broken in their home. Assume the broken window went unnoticed and pipes froze resulting water damage to the home. Would you expect their homeowner’s insurance company to cover the loss?

Legally they could deny coverage. But under the circumstances, it would be highly unlikely for an insurance company to deny coverage. If they did decline, the RI Department of Business Regulation or the courts would usually order then to pay the loss.

So why is this a potential no coverage situation?  There are a few clauses in the policy that would come into play here. The policy was written with Mr. B as the “named insured” to cover his “dwelling” on the “resident premises”.  The contract language defines the residence premises as “the dwelling where you reside”. He’s now residing in the nursing home.

His spouse, Mrs. B, should be an “additional named insured” on the policy. As such, while she is residing in the residence premises, the loss would be fully covered. However, she was temporarily out of the home, residing in the hospital first and then the rehab facility. Most insurance companies would take the position that being away from the premises for short periods are expected and their coverages would remain in effect. Some have also followed the letter of the policy language. Most of their denials have been successfully challenged in courts around the country.

What if Mrs. B opted to move into an assisted living facility or senior housing complex instead of returning home? Once she and her husband establish a separate residence, the insurance company is legally within the terms of the contract to immediately terminate the coverage. Because the insurance company would not become aware of their lack of occupancy until after the loss, they would not have had grounds to issue a cancellation notice before the loss. The lack of occupancy would likely be identified during the claims investigation possibly resulting in both a claim denial letter and policy cancellation notice.

The language in insurance policies commonly is standardized between companies. The Insurance Agents and Brokers of America for several years fought for the need to clarify the contract language defining when a residence was no longer considered occupied. In 2015, language was added to most policies stipulating that when an insurance company becomes aware that the named insured has not continuously occupied the insured residence for 60 days or more, they can issue a cancelation notice with coverage terminating no less than 30 days after that notice. That change served to reduce the potential for an insurance company to deny coverage for short term periods when your home is unoccupied.

There is still policy language an insurance company can use to deny coverage when a home is unoccupied. Assume Mr. & Mrs. B’s home had been vacant for 60 or more consecutive days before the glass loss, any vandalism or malicious mischief damage, and the damage resulting from that vandalism, would not be covered. If the broken window then allowed pipes to freeze, the damage to the pipes and any resulting water damage would not be covered.

What about vacancies due to relocation, spending 2-3 months in Florida in the winter, military deployments, and attempts to sell a home. Coverage issues remain that the average consumer can not be expected to be aware of. The people buying “on line” could find themselves getting burned over this type of coverage concern. It is these types of situations that bring insured’s into me; uncommon and unique situations require customized solutions. No one should ever be surprised to learn that they have no coverage after a loss.