Renting Out Your Home: Issues

If you rent out your home for a few days or part of your home permanently, the majority of your Miami home insurance policy is most likely intact.  But what if you move out, keep the house and rent it out?  In that scenario it’s extremely likely you no longer have any liability coverage, but if the house burns down… is there still coverage?

When a homeowner uses a building on their property, other than the home, for business there is no direct property damage coverage yet the same is not true if the business is run out of the home.  There isn’t any liability coverage but there is coverage for direct property damage.  If that’s the case, then could the same thing be applied to renting out your home?

And what about those that temporarily rent their home while trying to sell it?  Certain losses, such as frozen/bursting pipes and glass breakage, may not be covered in homes considered vacant or unoccupied.

One example involves an agent concerned for an insured.  They had written an HO-3 (a type of homeowner’s) policy and later the insured moved but permanently rented out the house.  The agent was unsure if claims were covered under their policy and wondered what could have happened to the insured if this information had not been shared with him.

The answer is that there is no liability coverage.  Their policy only offers liability coverage for renting out your home occasionally (ex: once per year during the Daytona 500 weekend) and partial rentals, such as one room of your home.  But, when it came to direct property damage, the agent had doubts that there was any coverage for it for several reasons.
1. Perils Insured Against’s grant of coverage says “We cover risk of direct loss to property in Coverage A…”
2. The policy defined Coverage A as “We cover the dwelling on the ‘residence premises’…” [I added emphasis]
3. The policy’s Definitions section has “residence premises” defined as “The one family dwelling… where ‘you’ reside [added emphasis] and which is shown as the residence premises in the declarations…”  ‘You’ refers to the individual(s) listed as a named insured on the policy.
4. So, with the insured out of the house, the rented home isn’t a “residence premises” and the dwelling isn’t on a “residence premises” so coverage does not exist.

It is somewhat unknown if this is what the policy intends or if it is just the result of a literal reading of the policy.

According to Black’s Law Dictionary, the definition of the word “residence” includes “Personal presence at some place of abode with no present intention of definite and early removal and with purpose to remain for an undetermined 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”.

Where it says “no present intention of definite and early removal”, does that mean residence ends when you decide you want to move?  Of course not.  But, in this example, the home is no longer the domicile and, therefore, no longer the residence.

Black’s Law Dictionary also contains a definition for “reside” (the word the policy uses) which is “Live, dwell, abide, sojourn, stay, remain, lodge… to dwell permanently or continuously…”  Things are not so in this particular situation.

When it comes to cases brought to court, the decisions don’t all go the same way.  Some cases that made a decision based on a literal reading of the policy are: Bryan v. United States Fire Ins. Co. (Texas, 1970); Allstate Ins. Co. v. Goldwater (Michigan, 1987); Shepard v. Keystone (Maryland, 1990); and Georgia Farm Bureau Mutual Ins. Co. v. Kephart (Georgia, 1993).

The Georgia Farm case was interesting.  The wife was the named insured but there was a divorce and she moved out.  The divorce was finalized and the ex-husband continued to live in the dwelling.  But under the policy’s terms, “you” was no longer residing there because the man is no longer a resident spouse of his ex-wife who is the named insured.

On the flip side, cases that did not go by the literal reading but ruled that there was coverage are: O’Neil v. Buffalo Fire Ins. Co. (New York, 1849); German Ins. Co. v. Russell (Kansas, 1902); Reid v. Hardware Mutual Ins. Co. (South Carolina, 1969); and Farmers Ins. Co. v. Trutanick (Oregon, 1993).  In this second group of cases, it was decided that there was coverage because phrases like “where you reside” are more of a description instead of a continuing warranty of occupancy.

In the end, it would seem that this issue is not resolved and could go either way should something unforeseen happen to the dwelling or its inhabitants.  If somebody decides to move out of their home and rent it to another, the best move may be to switch the policy from a home insurance policy to a dwelling fire policy.

If you have any questions about switching policies or what coverage you may or may not have if you permanently rent out the dwelling listed on your homeowner’s policy, please give us a call at 305-270-2100.

At Filer Insurance, Inc., we have been providing Home, Auto and Business Insurance in Miami and South Florida since 1919.  We would very much like to have you as one of our customers.  Please give us call or come by our office for a free quote on your insurance.

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