The British Columbia Court of Appeal in Coburn v. Family Insurance Solutions, 2014 BCCA 73, recently clarified the scope of a vacancy exclusion in a homeowner's policy, concluding that a house with no one living in it for more than 30 days is vacant even where:
- the homeowner attends the property daily to conduct renovations;
- the homeowner sleeps in the house for a night;
- the homeowner has secured prospective tenants; and
- the prospective tenants store personal possessions on the property.
In Coburn, the homeowners began extensive renovations to a house they had previously rented to long-term tenants whose lease had come to an end. While those renovations were underway, no one lived in the house. The previous tenants had already removed all their belongings, and they were not going to return. The homeowners stored a mattress in the garage, but they did not store any personal items, furnishings or equipment in the home for their use. The homeowners found new tenants who agreed to move in after the renovations were completed. Prior to the move-in date, those new tenants stored some of their belongings under a lean-to shelter outside the house, but not in the house.
One of the homeowners did most of the renovation work himself, which meant he was at the house almost daily, between 8 and 14 hours each day. After working those long days he returned each night to his principal residence in another community, except once, when he slept on a mattress on the floor in the house he was renovating.
Before the new tenants moved in, the house was significantly damaged by a fire. The renovations had been in progress for approximately 80 days by that time. The insurer denied the homeowners coverage under their property policy because the loss occurred while the house had been vacant for more than 30 days. The relevant exclusion in the policy provided as follows:
This insurance does not cover loss or damage arising from [...] any perils while the Dwelling Building is, to the knowledge of the Insured, Vacant, as defined, for more than thirty (30) consecutive days or in the Course of Construction.
The term "vacant" was defined in the policy as follows:
The occupant(s) has/have moved out with no intent to return or the dwelling does not contain furnishings or household equipment sufficient to make it habitable.
However, the policy did not define the terms "occupant", "occupied", "moves in", or "contents".
The summary trial judge upheld the insurer's denial. In coming to that conclusion, the summary trial judge rejected the argument that the homeowner's regular presence at the house conducting renovations meant that the property was not "vacant". He also rejected the argument that the vacancy ended when homeowners reached an agreement with their new tenants, and those tenants moved some of their personal belongings onto the property.
The Court of Appeal agreed with the summary trial judge. After reviewing a long line of authorities dealing with rental dwellings under renovation and whether those dwellings were "vacant" within the meaning of the relevant insurance contracts, the appellate panel found that the homeowner's almost daily presence in the house to conduct extensive and protracted renovations did not make him an occupant. Quite simply, he did not live there; instead, he lived in a different home in another community. The Court of Appeal agreed to consider new evidence about the timing of the homeowner's overnight stay at the house in relation to the fire and accepted that he slept overnight at the house within 30 days of the date of loss. However, the Court ruled that staying one night did not make the homeowner an occupant of the house. The Court also rejected the argument that the tenants had become occupants of the house (and the house had therefore ceased to be vacant) when they entered into a rental agreement with the homeowners or when they moved some of their possessions onto the property. Like the homeowner, the tenants did not reside in the house. As a result, the Court of Appeal agreed with the court below that the vacancy exclusion applied and that the homeowners therefore did not have coverage for their loss. Therefore, the Court dismissed their appeal.
Vacancy cases often feature policyholders who are unmindful of the vacancy exclusion in their insurance contracts. Coburn is distinct from those cases because, in Coburn, the homeowners took the appropriate steps to arrange and pay for a vacancy permit after renovations had been underway for a month, e.g., when the house had been vacant for 30 days. Their policy was amended by the addition of a one-month vacancy permit, and the homeowners paid the additional premium for that extra coverage. During the month the vacancy permit was in effect, the homeowners found their new tenants, and reached a rental agreement with them. It was clear from the summary trial evidence that the homeowners did not permit the tenants to move in or even store some of their possessions inside the house at that time because the renovations were not completed. However, the homeowners told their broker that the new tenants had moved into the house and arranged to have the vacancy permit cancelled, saving themselves approximately $45 per month in premiums. In so doing, the hapless homeowners left themselves uninsured for the very loss the vacancy permit they cancelled — but should have instead extended — would have covered.
The Court may have been tempted to look past the language of the exclusion and focus instead on the risk of loss actually assumed by the parties under the circumstances. The commercial reason for vacancy exclusions is the obvious elevated risk of loss when premises are vacant. In this case, one might have argued that the risk was not elevated at all because the homeowner was physically present at the house from 8 to 14 hours per day, which is comparable to the amount of time that many typical homeowners spend in their own homes, when taking into account work and other commitments outside the home. Fortunately for insurers and others who depend upon consistent interpretation of contractual language, the Court did not succumb to this temptation.
Coburn serves as a useful precedent that should give confidence to insurers that the courts will interpret the vacancy exclusion in homeowner's policies in a fashion that accords with the plain meaning of the words used in the insurance contracts. It is also a reminder that, as always, insurers should ensure that their exclusion language is clear and unambiguous.
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