TECH
TALK
Vacancy and/or Unoccupancy and the
Homeowners Policy
January 2014
By Irene Morrill, CPCU, CIC, ARM, CRM, CRIS, LIA CPIW
Vice President of Technical Affairs
I periodically receive questions regarding homeowners leaving their house with no intention to return. Perhaps
the owner died or moved, but in all cases the named insured is not returning. Is there a problem with coverage?
Or, what about if they are leaving the house for a few months and leaving the house unoccupied, will that be a
problem? Let’s look to see if there is more or less coverage than you thought.
“Vacancy” v. “Unoccupied”
There is a literal difference in the definitions of the two terms, but there can still be problems of coverage for both
issues.
Unoccupied.
Refers to a property which is furnished or has furnishings in it but is not occupied or being lived in. People are
absent.
Vacant.
A term used in Property Insurance to describe a building that has little to nothing in it. This goes one step beyond
the description of unoccupied.
Dictionary.com defines vacant as:
Containing nothing; empty.
An empty or unoccupied space
Why is vacancy or unoccupancy bad? Wouldn’t less things and less people be less “exposure”?
Funny … life doesn’t work quite that way. If a loss occurs in a vacant or unoccupied building, it can continue and
worsen since nobody is aware of the issue. If a water pipe breaks, how long will it be gushing water causing water
damage until someone knows? If a building is vacant or unoccupied, it will certainly be “noticed” by the miscreants
of the world and become the new “fun place to go” at night. A vacant or unoccupied building can be a candidate
for senseless acts of vandalism … a specialty in today’s world!
The general rule of thumb seems to be that a voluntary carrier will most probably NOT want to write a vacant
building. In fact, one might have great difficulty securing coverage in the excess market for such a risk! Whether
a carrier will write homeowners coverage on an unoccupied home will depend on the carrier and the reason for
unoccupancy.
Massachusetts Association of Insurance Agents
91 Cedar Street - Milford, MA 01757
TECH Hotline 800.870.7091 * 800.972.9312 * 508.634.2900 * 508.634.2929 (FAX)
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January 2014
If an agent is aware of the situation, then the agent should inform the carrier. Remember, “what an agent knows,
a principal/insurance carrier knows.” Often, after I suggest that the agent inform the insurance carrier, the agent
laments that the company will want off the risk. Well, let the company be the “meanie”. Most carriers will
probably non-renew. There is the potential that the vacancy or unoccupancy has already affected the physical
attributes of the risk, and the HO and DP policies allow a carrier to cancel “mid-term” if they can show:
Physical changes in the property insured which result in the property becoming uninsurable; or
If the agent and/or carrier is not aware of the vacancy/unoccupancy issue and a loss occurs, will the policy
respond? Let’s look:
Vacancy and personal property policies … just what is the problem?
ISO HO and DP …
ISO HO-3 (4/91) has the following exclusion under Coverage A & B for vandalism
Vandalism and malicious mischief if the dwelling has been vacant for more than 30 consecutive days
immediately before the loss. A dwelling being constructed is not considered vacant;
ISO’s HO-3 (10/00 and 05/11) is similar but broadens the time period allowed:
Vandalism and malicious mischief, and any ensuing loss caused by any intentional and wrongful act
committed in the course of the vandalism or malicious mischief, if the dwelling has been vacant for more
than 60 consecutive days immediately before the loss. A dwelling being constructed is not considered
vacant;
ISO’s DP-3 (12/02)
Vandalism and malicious mischief, theft or attempted theft, and any ensuing loss caused by any
intentional and wrongful act committed in the course of the vandalism or malicious mischief, theft or
attempted theft, if the dwelling has been vacant for more than 60 consecutive days immediately before
the loss. A dwelling being constructed is not considered vacant;
ISO HO-3 (4/91) has the following exclusion under Coverage A & B for freezing of pipes
Freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system or of a
household appliance, or by discharge, leakage or overflow from within the system or appliance caused by
freezing. This exclusion applies only while the dwelling is vacant, unoccupied or being constructed, unless
you have used reasonable care to:
(1) Maintain heat in the building; or
(2) Shut off the water supply and drain the system and appliances of water;
ISO’s HO-3 (10/00 and 05/11) is similar but STRICTER … frozen pipe exclusion applies whether home
occupied, unoccupied or vacant!
Freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system or of a
household appliance, or by discharge, leakage or overflow from within the system or appliance caused by
freezing. This provision does not apply if you have used reasonable care to:
(a) Maintain heat in the building; or
(b) Shut off the water supply and drain all systems and appliances of water.
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ISO’s DP-3 (12/02) is like the HO-2000/2011 – frozen pipe exclusion applies whether house is occupied,
unoccupied or vacant!
(1) Freezing of a plumbing, heating, air conditioning or automatic fire protective sprinkler system or of a
household appliance, or by discharge, leakage or overflow from within the system or appliance caused
by freezing. This provision does not apply if you have used reasonable care to:
(a) Maintain heat in the building; or
(b) Shut off the water supply and drain all systems and appliances of water;
The ISO HO forms and DP forms also have a restriction for vacancy in the Glass Breakage Additional Coverage.
The HO 91 states:
9. Glass Or Safety Glazing Material
……
b. This coverage does not include loss:
……
This coverage does not include loss on the “residence premises“ if the dwelling has been vacant for more
than 30 consecutive days immediately before the loss. A dwelling being constructed is not considered
vacant.
The ISO HO-2000/HO-2011 Glass Breakage Additional coverage provides a longer time span of 60 days
before glass breakage in a vacant building is excluded.
9. Glass Or Safety Glazing Material ……..
b. This coverage does not include loss:
……..
(2) On the “residence premises“ if the dwelling has been vacant for more than 60 consecutive days
immediately before the loss, except when the breakage results directly from earth movement as
provided in a.(2) above. A dwelling being constructed is not considered vacant.
The ISO DP 2002 Form language is similar to the HO-2000/HO-2011:
11. Glass Or Safety Glazing Material
……..
b. This coverage does not include loss:
……..
(2) On the Described Location if the dwelling has been vacant for more than 60 consecutive days
immediately before the loss, except when the breakage results directly from earth movement as
provided for in a.(2) above. A dwelling being constructed is not considered vacant.
Massachusetts General Law Chapter 175 Section 99 - Fire Policy has the following provision in it that results in
a Massachusetts amendatory endorsement to the DP and HO policies (as well as the BOP and CP commercial
policies):
Unless otherwise provided in writing added hereto this company shall not be liable for loss occurring:
(a) while the hazard is increased by any means within the control or knowledge of the insured; or
(b) while the described premises, whether intended for occupancy by owner or tenant, are vacant or
unoccupied beyond a period of sixty consecutive days for residential premises of three units or less and
thirty consecutive days for all other premises; or
(c) as a result of explosion or riot, unless fire ensue, and in that event for loss by fire only.
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This law was instituted to reduce “urban renewal,” especially of rental properties! The language of this MA law is
added to state amendatory endorsements for the various property policies. ISO’s amendatory endorsement for
the HO policy is HO 01 20; DP 01 20 for the DP, BP 01 09 for the BOP and CP 01 09 for the CP.
The following excerpt is the exclusionary language added to MA property policies per Chapter 175 Section 99
Vacancy
Unless otherwise provided in writing, we shall not be liable for loss caused by fire or lightning occurring
while a described building is vacant, whether intended for occupancy by owner or tenant, beyond a period
of 60 consecutive days for residential purposes of three units or less and 30 consecutive days for other
residential purposes.
In a personal lines policy the perils/additional coverages that are “at risk” in a vacant building are:
vandalism, fire and lightning, freezing of pipes and glass breakage.
Does this time period have to occur ENTIRELY within the CURRENT policy???
NO!!!!! In Pappas Enterprises, Inc. vs. Commerce and Industry Insurance Company, 1996, it was determined that
the period of vacancy can be “carried” over or counted from one policy period to the next!! So … consider a
policy that runs from 1/1/13 to 1/1/14 and is renewed 1/1/14-1/1/15. There is a fire loss to the structure on
2/1/14. When the adjuster investigates the loss, he finds that the building has been vacant since 12/1/13 … that
would be 63 days of continuous vacancy ... BINGO … claim is denied!!! We MUST be aware of what is
happening. Renewing “as is” without any discussion with a client can lead to a claim denial when a loss arises.
Does “vacancy” REALLY mean “no nothing?”
Not necessarily … Steven Speth, Executor of Estate of Gertrude Swesh, vs. State Farm in Kansas, 1993,
determined that a house with utilities still on and the stove and refrigerator still there was considered vacant
for more than 30 days and a vandalism claim was denied. Even though the policy does not “define” vacancy, the
court, as did many others, did not find the term ambiguous. The court found vacancy to mean “as being
without content or occupant” and determined it similar to “empty”.
In Estes vs. St. Paul Fire Kansas, 1999, a house was considered vacant for purposes of the vandalism exclusion.
The court states that the plain and ordinary meaning of vacant is “that the structure is not lived in and lacks the
basic amenities for human habitation.”
In Myers v., Merrimack Mutual 788 F2d 568 (7th cir. 1986) an apartment building was considered vacant even
though stoves and refrigerators remained.
If you are aware that your insured moved or died or the tenants have vacated the premises and the house is
uninhabited, you had best inform your insurance carrier so that they can make the decision of what to do on the
renewal or during the policy period. In the case of death, the house is most probably still furnished. But, where
is the “intention to return?” Perhaps you can suggest a relative live there or the home be rented out until
probated so that at least a Dwelling Fire can be written!
When the insured moves and still hasn’t sold their home, you should inform your insurance carrier, and at the
same time, suggest the possibility of property rental to your client. Leaving a table and a chair does not show
“intention to return” and does NOT provide “amenities for normal human habitation.”
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Certainly foreclosure can be a HUGE problem. At some point, the bank makes the former owner vacate and
the personal contents are removed. That is definitely a vacancy problem! As an agent, once we are aware of
this, we have an obligation to inform the insurance company ASAP so that the company can cancel the policy
BEFORE a claim. I would HATE to be involved in a claim … such as STOLEN PIPES … and resulting water
damage, and then have to fess up to the company that I KNEW the client had moved out per foreclosure. The
insurance company could argue that I am responsible for claim payment reimbursement, arguing that IF I had
told them, they COULD have cancelled and been off the risk.
Now … what about the situation where the house is not empty such as death of named insured; house
for sale and insured has moved or foreclosure?
If the owner has moved out and does NOT live there and it is NOT a second home, is the client entitled to a HO
policy? What happens if there is a claim? Will the policy respond? Will there be coverage for the remainder of
the policy period?
Interesting concept today. IIABA created a whitepaper addressing the issue of when a definition can be
exclusionary!
This would be a HO policy issue involving the definition of “residence premises.” All the ISO HO editions define
“residence premises” and use the term throughout the policy.
ISO HO-91 definition:
“Residence premises“ means:
a. The one family dwelling, other structures, and grounds; or
b. That part of any other building;
where you reside and which is shown as the “residence premises“ in the Declarations.
“Residence premises“ also means a two family dwelling where you reside in at least one of the family units
and which is shown as the “residence premises“ in the Declarations.
The HO-2000/HO-2011 is almost identical:
“Residence premises“ means:
a. The one family dwelling where you reside;
b. The two, three or four family dwelling where you reside in at least one of the family units; or
c. That part of any other building where you reside;
and which is shown as the “residence premises“ in the Declarations.
“Residence premises“ also includes other structures and grounds at that location.
Under all the editions … you is the named insured
In this policy, “you“ and “your“ refer to the “named insured“ shown in the Declarations and the spouse if a
resident of the same household. “We“, “us“ and “our“ refer to the Company providing this insurance.
If YOU don’t live there because YOU died or moved or were foreclosed upon … then there is no “residence
premises.” Is this a problem? Where do we see the term “residence premises” in the policy?
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Under Section I in ALL the ISO HO editions we see “residence premises” addressed under:
Coverage A
A. Coverage A – Dwelling
1. We cover:
a. The dwelling on the “residence premises“ shown in the Declarations, including structures attached
to the dwelling; and
b. Materials and supplies located on or next to the “residence premises“ used to construct, alter or
repair the dwelling or other structures on the “residence premises.“
2. We do not cover land, including land on which the dwelling is located.
Oops … if YOU don’t live there … there is NO “residence premises” and, therefore, potentially NO losses are
covered for the dwelling.
Coverage B
B. Coverage B – Other Structures
1. We cover other structures on the “residence premises“ set apart from the dwelling by clear space. This
includes structures connected to the dwelling by only a fence, utility line, or similar connection.
Oops … if YOU don’t live there … there is NO “residence premises” and, therefore, potentially NO losses are
covered for any other structure.
Coverage D
D. Coverage D – Loss Of Use
The limit of liability for Coverage D is the total limit for the coverages in 1. Additional Living Expense, 2. Fair
Rental Value and 3. Civil Authority Prohibits Use below.
1. Additional Living Expense
If a loss covered under Section I makes that part of the “residence premises“ where you reside not fit to
live in, we cover any necessary increase in living expenses incurred by you so that your household can
maintain its normal standard of living.
Payment will be for the shortest time required to repair or replace the damage or, if you permanently
relocate, the shortest time required for your household to settle elsewhere.
2. Fair Rental Value
If a loss covered under Section I makes that part of the “residence premises“ rented to others or held for
rental by you not fit to live in, we cover the fair rental value of such premises less any expenses that do not
continue while it is not fit to live in.
Payment will be for the shortest time required to repair or replace such premises.
Oops … if YOU don’t live there … there is NO “residence premises” and, therefore, potentially NO loss payment
under Loss of Use available for additional living expense or fair rental value.
Coverage E Personal Liability – do you still have premises liability?
Under all ISO HO editions, Coverage E Personal Liability and Coverage F Medical Payments To Others respond as
long as there is not an exclusion.
The HO-91 is essentially the same language as the HO-2000/2011 but without the “headings” for the exclusions.
The HO-2000/2011 editions are just easier to FIND the exclusions. (LOL)
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E. Coverage E – Personal Liability And Coverage F – Medical Payments To Others
Coverages E and F do not apply to the following:
….
4. “Insured‘s“ Premises Not An “Insured Location“
“Bodily injury“ or “property damage“ arising out of a premises:
a. Owned by an “insured“;
b. Rented to an “insured“; or
c. Rented to others by an “insured“;
that is not an “insured location;“
If the property is owned by an insured, there is No Coverage E or F unless this location is addressed in the
“insured location” definition. Again, all the ISO HO editions have essentially the same definition:
“Insured location“ means:
a. The “residence premises;“
b. The part of other premises, other structures and grounds used by you as a residence; and
(1) Which is shown in the Declarations; or
(2) Which is acquired by you during the policy period for your use as a residence;
c. Any premises used by you in connection with a premises described in a. and b. above;
d. Any part of a premises:
(1) Not owned by an “insured“; and
(2) Where an “insured“ is temporarily residing;
e. Vacant land, other than farm land, owned by or rented to an “insured“;
f.Land owned by or rented to an “insured“ on which a one, two, three or four family dwelling is being
built as a residence for an “insured“;
g. Individual or family cemetery plots or burial vaults of an “insured“; or
h. Any part of a premises occasionally rented to an “insured“ for other than “business“ use.
Oops. Don’t you just hate a definition within a definition? An insured location includes a “residence premises,”
but we are back to “where you reside.” So if YOU don’t live there, YOU don’t have a “residence premises,” and
none of the other sections of this definition apply.
If you would like a copy of this IIABA “Where You Reside” white paper click here.
In real life situations such as death of named insured or inability to sell the property and insured has had to
move prior to sale … perhaps you can convince the insurance company to waive the policy provisions of
vacancy and “residence premises” – at least for the remainder of the policy period.
All the ISO HO editions have this condition applicable to Sections I and II of the policy:
Waiver Or Change Of Policy Provisions
A waiver or change of a provision of this policy must be in writing by us to be valid. Our request for an
appraisal or examination will not waive any of our rights.
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Will a carrier invoke the “residence premises” issue which is WAY more comprehensive in scope than vacancy or
unoccupancy? I don’t know. What I DO know is that as soon as you are aware of the change in exposure, you
MUST address this with your insurance company. I would rather have the company make the decision to cancel,
and then go to surplus lines to buy a policy that MIGHT actually pay WITHOUT an argument, than try to argue
my way out of “vacancy”, “unoccupancy” or “residence premises.”
Good luck!
*****
If I can be of service to you, please call me, Irene Morrill, Vice President of Technical Affairs at
800.870.7091 or email me at [email protected].
This article has been developed expressly for the members of MAIA. Reprint by other than members
without the express permission of the author is not permitted.