Within 30 days after the closing of a home sale, a fire occurred. The buyers had secured their own coverage which took effect at the closing date. After the closing date, but BEFORE the fire, the seller’s insured terminated coverage as of that closing.

The buyer’s insurer responded to the loss, but it did not believe that it had sole responsibility. It filed a lawsuit, but for an uncommon reason.

Click below to read more about the insurer’s request that the seller’s insurer respond partially to the loss. The court was faced with examining a foundational basis of residential insurance.

We’re all aware of how often one has to think about money. The litigation featured in this newsletter illustrates the reverse, how money affects our thinking. Yes, it’s subtle, but still a distinct difference. Sadly, it can shift from rational to rationalizing.

As just mentioned, the dispute between the insurers struck at a basic tenet of a contract. A person who wishes to be reimbursed for a loss under a policy must have a valid financial interest in the property that is damaged, destroyed or lost. The home buyer’s insurer insisted that the seller’s insurer still had an obligation to respond in part to the fire loss. Its position was that an insurable interest was preserved by an agreement to let the sellers live in the home for 30 days after the sale.

Click here for a brief description of aspects of a dwelling policy. It is from the Personal Lines Section of PF&M found in Advantage Plus.

An insurer which, by its corporate entity nature, is an expert regarding the service it provides, forwarded an argument that another company shared responsibility for a loss. From the time shortly after the loss up to and through two levels of litigation, it held firm. What could have been its rationale/rationalization?

It appears that the closing agreement was the key. Since the sellers held a legal right to occupy the property for up to 30 days, the buyer’s insurer thought that this was equal to their also maintaining a temporary, insurable interest in the property. However, precisely what was the impact of the loss? Recall that the sellers did not spend any time in the home after the sale.

Click here for an excerpted piece about insurance contracts. It touches on relevant areas, including conditions. It is from Gordis on P&C Insurance found in Advantage Plus.

It is always possible to raise points that, at some level, can support an objective. But there is the question of whether they also create a valid coverage obligation. The buyer’s insurer fulfilled its obligation to their policyholders for the fire loss. While it is important to legitimately secure financial participation from other parties, doing so must have merit. Was that the case in this instance?

The agreement permitting possible extended occupancy of the home is, in our opinion, merely a technicality. The agreement did not include a financial consideration for the possible occupancy. That made it more of an extended courtesy which, again, the sellers did not use.

The sellers did not suffer any loss because of the fire. If they had occupied the dwelling and a fire forced their evacuation, that would lead to an additional loss responsibility to the buyers, not the sellers. Why? If a fire created additional expenses for the sellers having to find different living arrangements, they could demand reimbursement from the buyers.

What should have occurred did occur, but it was needlessly accompanied by the time and expense of litigation.

Click here for an excerpt from an article that points out the importance of contracts with regard to the proper operation of insurance. They are essential and it is from the October 2018 issue of Rough Notes Magazine found in Advantage Plus.