Which House is Which? The Importance of Clarity When Describing Policy Coverage

Author: Steven O'Brien

Guest Editor: Grace Shuman

Related Articles: Coverage, Insurance, Massachusetts

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December 3, 2021 9:00am

 

Using clear language and specifically defining terms can be of paramount importance when writing an insurance policy.  In a recent case in Massachusetts, the court found in favor of the insurer based on their clear and concise insurance policy, which left no question as to whether they were liable for coverage in a complicated situation.[i]

In 2017, the Nortons (“plaintiffs”), were selling their home in Duxbury.  At that time, they also owned a home in Sandwich.  While selling the Duxbury house, plaintiffs represented their house had no water damage issues, but the husband knew this was a false representation.  The previous owner had informed plaintiffs the house had a history of flooding in the basement – in the 1990s and in 2005.  In fact, prior to the sale, plaintiffs executed a Seller’s Statement of Property Condition and excluded the history of flooding.

The Duxbury home eventually sold, and the buyers sued plaintiffs after multiple floods caused severe damage to their personal property and the home in 2018.  Buyers had to make numerous repairs to the home.

In 2018, plaintiffs had insurance for their new home in Sandwich, and plaintiffs asserted the insurance policy would cover the buyer’s damage.  This coverage had certain limits and exceptions.  The following was excluded from coverage: “‘Bodily injury’ or ‘property damage’ arising out of a premises…[o]wned by an ‘insured’;…that is not an ‘insured location.’”[ii]

The court opined the policy specifically defined the insured location as:

“[r]esidence premises,” which is defined in turn as “[t]he . . . dwelling where [the insured] reside[s] . . . and which is shown as the ‘residence premises’ in the Declarations.” The “residence premises” identified on the declarations page is the Nortons’ home in Sandwich. There is no dispute that the Duxbury property is not an insured location under the policy.[iii]

The insurer argued the uninsured premises exclusion applied.  In the uninsured premises exclusion, there is no coverage for a “distinct third ‘peril’ — injury arising out of the premises of uninsured property — because the insurer has not been given the opportunity to inspect and assess the uninsured property and been compensated to assume this additional risk.” [iv]

Based on the policy, the court found the issue at bar necessarily arose out of the Duxbury house because it could not have occurred without the Duxbury house.  Essentially, “the flooding was causally related to the uninsured property’s condition.”[v]  Additionally, the court agreed with the insurer because it was owned by plaintiffs at the time of the misrepresentation which was the root cause of the lawsuit.  Therefore, because the misrepresentation occurred when plaintiffs still owned the house, the uninsured premises exclusion applied.

The court found the exclusionary language protected the insurer.  Because the Duxbury house was not the insured property in 2018, the insurance policy did not apply to that house and the insurer does not have to defend plaintiffs.

 

Takeaway

Insurers should use concise, clear language when drafting policy agreements.  Here, the usage of clear language in the policy about the insured location saved the insurer from having to defend a costly misrepresentation suit in court.  Generally, such clear language can result in litigation ending sooner rather than later.

 

 

 


[i] Norfolk & Dedham Mut. Fire Ins. Co. vs. Norton, Mass. App. Ct., No. 20-P-1200 (Nov. 8, 2021).
[ii] Id. at at 2, quoting the policy.
[iii] Id.
[iv] Id. at 5, quoting Green Mountain Ins. Co. v. Wakelin, 484 Mass. 222, 226, 140 N.E.3d 418 (2020).
[v] Id. at 6.

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