Recent Case Highlights the Need to Review Insurance Policies

A recent Michigan Court of Appeals decision serves as a reminder that all insurance policies should be reviewed periodically to ensure compliance with the terms of the policy. Insurance policies are contracts, and insured parties must follow the terms of the contract or run the risk that when a claim is submitted, the insurance company may deny it.

The facts of the case in simplified terms follow. An elderly lady bought a home and insured it with a standard homeowner’s policy. A number of years later, with her health declining, she moved into an apartment closer to her relatives and doctors. She lived in the apartment full-time and almost never visited the property, although most of her belongings remained there. One winter, the property suffered extensive water damage due to frozen pipes. The homeowner submitted a claim for the damage and it was denied. She was forced to file a lawsuit for breach of contract against the insurance company.

The reason for the denial given by the insurance company was that since the homeowner no longer lived in the property, it was no longer considered her “dwelling” at the time of the loss. The policy’s definition of “dwelling” included the phrase “where you reside.”

The court didn’t use any complicated legal analysis to make its decision. It simply looked at the Webster’s College Dictionary definition of “reside.” The court determined that since she didn’t live at the home “permanently or for a considerable time”, she did not reside there. The court looked at other arguments from both sides of the case, but those details are beyond the scope of this article.

Whether the court got it right or not is irrelevant to my point. The insurance company certainly makes a valid argument that their risk increases when a home is left vacant. Nevertheless, the moral of the story is – don’t assume your insurance policy will cover you simply because you pay your premiums. You must comply with its terms. Insurance companies employ claims adjusters and retain attorneys to pick apart the minute details of insurance contracts to determine whether a claim should be paid or denied. It is big business. It is imperative that you review your policies (all of them, not just your homeowner’s policy) periodically or whenever you have a change in your circumstances. If you are unsure of something, talk to your agent, someone at the insurance company, or an attorney. If you don’t, it could cost you dearly. There is nothing worse than paying a premium for years and not getting the benefit in your time of need.

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