The question of ‘who is an insured’ doesn’t seem complicated, until a claim is denied by your insurance company due to their decision that someone is simply ‘not an insured’ according to the policy language. No client likes to hear that the coverage they thought they had paid for, isn’t there when they need it.
But what about instances when your insurance company denies a claim because someone in the household IS an insured?
That seems odd. We won’t pay because you are covered by the policy. Yes I know, the plot thickens; so, I shall explain.
We spend a lot of time educating and cautioning clients about the gaps in coverage that exist when people living in their home are not an insured under the policy definition. This is often discussed when it comes to an auto insurance policy; and having someone in the home who is NOT related by blood, marriage or adoption.
For this to be more clearly understood, let’s travel back in time. As recently as 30 years ago, the traditional family was a home made up of 2 married parents and their children. Then families began adopting children including those both related and not related to them; think mainly grandparents; however the insurance industry kept up with that with the addition of the word ‘adoption’ as part of the ‘insured’ definition; again, as long as they were ‘household members’. We rarely saw others living in the home that were not related by blood, marriage or adoption.
Then the onset of what was phrased the nuclear family came about, which was defined as a couple and their dependent children; but the couple was not united in marriage. Now society has transitioned into homes made up of any mix of people, generations, relations and non-relations.
When households mix like this, it’s great for the economy of the occupants, but becomes a difficult situation to figure out liability and insurance implications. One recent court decision had me wanting to write about this topic because it’s rare for a claim to be denied based on the fact that someone in the household was considered an ‘insured’; but as I will show, that happens, and often.
The claim I will detail took over 5 years for courts and lawyers to figure out and was finally settled in a court of appeals in the summer of 2019. The claim involved 2 unrelated individuals living together in a home only owned by one of them. To make this story easier to tell without continuing to use the words male and female, we will name them Cleopatra and Marc Anthony; the Roman general, not the singer. I know, lacks creativity, but I’m saving that for another blog.; maybe.
Marc owned a home and invited his girlfriend, the lovely Cleopatra, to move in with him. She agreed and moved in with her toddler age children. Cleopatra was not employed outside of the home; therefore, Marc Anthony paid the household bills including purchasing necessities for the young children of the household who were not related to him. One day while moving some equipment, Marc backed over a large pile of dirt with a Caterpillar skid loader. That pile of dirt, tragically, was Cleopatra’s son on his battery-operated 4-wheeler; and he was now critically injured.
Marc Anthony had $500,000 of liability on his home insurance and therefore submitted a claim for the young toddler’s injuries. That claim was denied shortly thereafter as the insurance company said that the injured party was an ‘insured’ under the policy and was therefore excluded from coverage. The mother of the child immediately filed suit against Marc Anthony, and he therefore filed a third-party complaint against his insurance company stating that they must defend and indemnify him in the lawsuit that Cleopatra had brought against him.
The court case went back and forth as these things tend to do and took years of evidence gathering, testimony, oppositions, judgements and appeals to finally end in the summer of 2019 with the insurance company receiving a summary judgement in their favor. The question here was; is the young injured party an insured by the legal definition in the policy. If he is not, there is coverage, but if he is, there is no coverage, just as the medical insurance on your home policy does not pay medical when you or your residing relatives are injured at the home. It’s a third-party coverage.
Upon resolution, the court of appeals declared that the young boy was an ‘insured’ as the policy’s definition stated, ‘any other person under the age of 21 residing with the ‘named insured’ who is in the ‘insured’s care’. Because Marc Anthony paid all household expenses including those that housed, clothed and fed these children, they were insureds under the policy definition and no defense or coverage was available for Marc Anthony against the lawsuit brought against him by Cleopatra.
It is cases like this, where I’m defiant that homeowner’s insurance should not be purchased in 15 minutes or less and clients should not be shopping all over to find the cheapest coverage with the least amount of conversation. Education in these situations is worth so much more than 15 minutes!
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