Ask Mike #2010-12 Subject: Moving In With Grandma Q. One of our Personal Lines insureds called today with something of an unusual question. Her grandson Jack, his wife Jill, and their 5-year-old son Zeke moved in with our insured last week. Mrs. Smith has a large house, and lives alone. She will be glad to have family living with her again for a while, and since her grandson and his family have fallen on tough times in this economy, it will benefit them, too. Jack lost his job last summer, and hasn t been able to find full-time work yet. He plans to enroll in college locally, and finish his last year. He quit at the start of his senior year when Jill got pregnant with Zeke. Jill s job seems pretty secure, so they hope to live with Mrs. Smith only for the year that Jack will be finishing his degree. Hopefully the job market will be better by then. They recently sold their house, but were only able to bring a limited amount of their belongings with them to Mrs. Smith s house. Some of their furniture is being stored in Jill s mom and dad s house (Mr. and Mrs. Jones), and the rest of their possessions are at a mini-warehouse. They cancelled their HO policy the day they closed on the sale of their house, and do not currently have a HO policy in their name. Mrs. Smith asked us how all this will impact her Homeowners and Personal Auto insurance. Should Jack and Jill be added as additional insureds to her HO policy? And do we need to list them as drivers under her PAP? Any suggestions for Jack and Jill s insurance? They do not have a HO policy, but do have a PAP with two vehicles, and it is up for renewal next month. We don t currently write it, but they asked us give them a quote on a PAP, and a HO, if we think they need one. Any other issues or recommendations you can pass along? A. Boy, this certainly shows the very personal side of the news headlines we ve been seeing for the last couple of years. No doubt situations like this are being experienced all over the country, and it s a good reminder for the insurance practitioner to be alert to unexpected changes and unusual solutions among no small segment of our personal lines insureds. Ironically, I recently read an article about a study done by the Pew Research Center on demographic changes in the USA, which bears this out. In one of their reports on multigenerational households released in 2008, Pew reported that approximately 49 million Americans (16% of the US population) lived in multigenerational households. And among the fastest growing group living in multigenerational households was adults age 25-34. In 2008, Pew reported that this was about 20% of this age group, up from 11% in 1980. Given the increased pressures on our economy since the 2008 study, the figures are probably higher now. It goes without saying that the social changes reflected in these studies have a significant impact on insurance coverage issues, such as you ve encountered with Mrs. Smith. Here are my thoughts on the coverage issues and possible solutions. Homeowners Policy Mrs. Smith s Homeowners Policy Coverage C. Since Jack, Jill and Zeke will be living with Mrs. Smith for at least a year, are related to Mrs. Smith, and own no residence of their own, I believe they are automatically insureds by virtue of being resident relatives. Here is the definition from Mrs. Smith s ISO HO: 5. "Insured" means: 1
a. You and residents of your household who are: (1) Your relatives; Although Jack and Jill s personal property will be divided among three locations, there is no coverage gap in the coverage they get as insureds under Mrs. Smith s HO. Here is the pertinent excerpt from Mrs. Smith s Coverage C: C. Coverage C Personal Property 1. Covered Property We cover personal property owned or used by an "insured" while it is anywhere in the world. After a loss and at your request, we will cover personal property owned by: a. Others while the property is on the part of the "residence premises" occupied by an "insured"; or b. A guest or a "residence employee", while the property is in any residence occupied by an "insured". Given the fact that Jack, Jill and Zeke are insureds under her HO policy, their personal property is covered while it is anywhere in the world. If the situation was different, and they were just staying with Mrs. Smith for a short time as mere guests, their property would still be covered under Mrs. Smith s HO policy under 1.b. However, in that scenario, their property would only be covered at Mrs. Smith s residence (or any other residence Mrs. Smith occupied; for example if they were all on vacation together, and a covered loss happened at the house/condo Mrs. Smith rented). For Jack and Jill s property in storage at the mini-warehouse, there is no restriction of coverage for their property under Mrs. Smith s HO. One of the common misunderstandings about property in storage is that a 10% limit applies; this is not true. Here is the excerpt from her Coverage C: 2. Limit For Property At Other Residences Our limit of liability for personal property usually located at an "insured's" residence, other than the "residence premises", is 10% of the limit of liability for Coverage C, or $1,000, whichever is greater. Note that the 10% limit only applies to property that is located at another residence of an insured. The mini-warehouse is not in a residence of Jack and Jill, and so they have full Coverage C limits available under Mrs. Smith s HO. Likewise, the 10% limit would not apply to property which is being stored at Mr. and Mrs. Jones s house (Jill s parents). As with the mini-warehouse, Mr. and Mrs. Jones s home is not a residence of Jack, Jill or Mrs. Smith, so her Coverage C provides coverage under the anywhere in the world provision. Mrs. Smith s Homeowners Policy Section II. The definition of insured in Mrs. Smith s HO that was referenced in the Coverage C discussion above ( resident relatives ) also applies to who is an insured in Section II Liability and Medical Payments. Therefore, Jack, Jill and Zeke are automatic insureds for their personal liability worldwide, the same as Mrs. Smith. Mrs. Smith s Homeowners Policy Additional Insured Endorsement. One of Mrs. Smith s questions was whether or not Jack and Jill should be added to her HO policy as additional insureds. The answer is no. As discussed above, all three are automatic insureds for Section I and Section II, by virtue of being resident relatives. Further, the ISO Additional Insured Endorsement (HO 04 41 10 00) would actually 2
provide them with significantly less coverage. The endorsement grants coverage to the additional insured(s) ONLY for (1) their interest in the house and detached structures; and (2) premises liability. Here is the pertinent excerpt: Definition 5. which defines "insured" is extended to include the person or organization named in the Schedule above, but only with respect to: 1. Coverage A Dwelling and Coverage B Other Structures; and 2. Coverage E Personal Liability and Coverage F Medical Payments To Others but only with respect to "bodily injury" or "property damage" arising out of the ownership, maintenance or use of the "residence premises". Mr. & Mrs. Jones s Homeowners Policy. Jill s mom and dad s HO provides coverage for Jack and Jill s property while it is being stored at their house. Here is the excerpt from their Coverage C: C. Coverage C Personal Property 1. Covered Property We cover personal property owned or used by an "insured" while it is anywhere in the world. After a loss and at your request, we will cover personal property owned by: a. Others while the property is on the part of the "residence premises" occupied by an "insured"; or b. A guest or a "residence employee", while the property is in any residence occupied by an "insured". Under 1.a., Mr. and Mrs. Jones can submit a claim for property of others while the property is at their residence. This property could be that of a neighbor, friend, or relative. Note that this coverage would not extend to Jack and Jill s property while it is at Mrs. Smith s house, or the mini-warehouse. Jack & Jill s Homeowners Policy. Despite the automatic coverages Jack and Jill have under the HO policy of Mrs. Smith, and Mr. & Mrs. Jones, I would still recommend that they purchase an HO-4 in their own names. While they clearly do have automatic coverage for their personal property in all three locations (Mrs. Smith s home, Mr. and Mrs. Jones s home, and the mini-warehouse), a significant loss at either home could exceed the Coverage C limit in force. In addition, Jack and Jill might need specific coverage options that neither Mrs. Smith nor Mr. and Mrs. Jones has, such as for jewelry or other scheduled property. In addition, while Jack and Jill are also insured under Mrs. Smith s HO for Section II liability and medical payments, they will have to share limits with Mrs. Smith. Having two more insureds under her policy does not increase her Section II limit. In addition, Jack and Jill might need higher limits in case they have a personal umbrella. Lastly, they have coverage under Mrs. Smith s HO solely by virtue of their resident relative status. When they move out, they lose their residency status, and thus their insured status. By having their own HO-4, this potential problem is eliminated. Personal Auto Policy Mrs. Smith s PAP. One of Mrs. Smith s questions was whether or not she needed to add Jack and Jill as drivers under her auto insurance. If she has an ISO policy, Jack and Jill have automatic insured status as resident relatives, much like they do under her HO policy. (The PAP uses the term family member, but it has essentially the same meaning as resident relative. ) Listing or adding drivers is an underwriting issue, and does not impact coverage under an ISO PAP. However, some non-iso PAPs have exclusions 3
for non-listed resident operators. Nonetheless, even if her PAP is written with an ISO-based PAP, it is prudent for you to report to her insurer the two new drivers who now reside in Mrs. Smith s residence, even though they have their own PAP. Therefore, under Mrs. Smith s ISO PAP, Jack and Jill have coverage as insured family members for Part A Liability while driving Mrs. Smith s auto. Under her Part B Medical Payments and Part C Uninsured Motorists coverage, Jack, Jill and Zeke are covered while occupying her auto, or if struck as pedestrians. However, Mrs. Smith s PAP has an exclusion for Liability, Medical Payments and Uninsured Motorists if Jack, Jill or Zeke are in their own (Jack and Jill s) auto. Here is the Liability exclusion in Mrs. Smith s PAP: Part A Liability Exclusions. B. We do not provide Liability Coverage for the ownership, maintenance or use of: 3. Any vehicle, other than "your covered auto", which is: a. Owned by any "family member"; However, Mrs. Smith s PAP would cover her for Liability if she was driving Jack and Jill s auto, since her PAP has an exception to Exclusion B.3. (above) as follows: However, this Exclusion (B.3.) does not apply to you while you are maintaining or "occupying" any vehicle which is: a. Owned by a "family member"; Similarly, Mrs. Smith s Part B Medical Payments would exclude Jack, Jill and Zeke if they were occupying their own (Jack and Jill s) auto. The Medical Payments exclusion tracks the Liability exclusion discussed above. Excerpt from Mrs. Smith s PAP: Part B Medical Payments Exclusions We do not provide Medical Payments Coverage for any "insured" for "bodily injury": 6. Sustained while "occupying", or when struck by, any vehicle (other than "your covered auto") which is: a. Owned by any "family member"; And, like her Part A Liability, Mrs. Medical Payments Exclusion 6. (above) provides an exception if she is occupying Jack and Jill s auto, as follows: However, this Exclusion (6.) does not apply to you. Likewise, Mrs. Smith s UM has a similar exclusion related to accidents where Jack and Jill are occupying their own auto. Excerpt from Mrs. Smith s UM coverage: Part C Uninsured Motorists Coverage Exclusions A. We do not provide Uninsured Motorists Coverage for "bodily injury" sustained: 1. By an "insured" while "occupying", or when struck by, any motor vehicle owned by that "insured" which is not insured for this coverage under this policy. This includes a trailer of any type used with that vehicle. 4
Lastly, coverage for Jack and Jill s auto under Mrs. Smith s Part D Coverage for Damage To Your Auto would be problematic, given the issue of insurable interest. Jack and Jill s PAP. As reflected in the discussion about the need for Jack and Jill to procure their own Homeowners Policy (HO-4 in this case), there is similarly strong merit for them to retain a PAP in their own name. As with HO, Jack and Jill might need specific additional coverage options and/or higher limits in their PAP. Hopefully, Mrs. Smith and Jack & Jill will make good decisions about their respective insurance in this new family arrangement. As Robert Frost so aptly observed, Home is the place where, when you have to go there, they have to take you in. What he didn t know was that in situations like the Smiths and Joneses, having family members take you in can really complicate everyone s insurance. Good luck, and thanks for a really interesting question. 5