Must Homeowner Request Coverage for Property of Others Before Loss? – Claims Magazine
Issue:
The named insured's friend has been living with the named insured in an intimate relationship for more than three years. They have never been married and the state does not recognize common law marriage The friend is not named in the ISO HO 00 03 04 91 policy as an insured and there is no other insurance. The friend sustains a theft loss to his tools. After the loss, the insured asks the Homeowners insurer to cover the theft of the tools. Assuming the insured had never previously notified the insurer of the presence of the friend in the household or of a desire to cover the property of the friend under the policy, is the loss covered?
Analysis:
There is some division of authority as to whether the optional coverage for property of others or guests under the Homeowners policy requires pre-loss notice of the insured's intent to cover the property. Thrasher v. State Farm Fire & Cas. Co., 734 F.2d 637 (11th Cir. Ala. 1984), and Knasel v. Insurance Co. of Illinois, 627 N.E.2d 137 (Ill. App. 1993), seem to say that only pre-loss requests for coverage are valid. However, both Camp v. Elmore, 689 F.2d 781 (8th Cir. Ark. 1982) (post-loss request), and Jennings v. First of Georgia Underwriters Co., 322 S.E.2d 694 (S.C. App. 1984) (pre-loss scheduling of another's property), allowed the option to be exercised without addressing whether requests have to be made pre- or post-loss.
Knasel, the most recent case denying coverage absent a pre-loss request, based its holding on two grounds. First, the court contrasted the "we cover" language used in Coverage C to promise coverage for property owned or used by an insured with the "we will cover" language used to cover "at your request" property of "others" or a "guest." Second, the court reasoned that a pre-loss notice would "provide the insurance company with the opportunity to adjust the premiums accordingly."
The view which does not require a pre-loss notice of the insured's desire to cover property of guests or others seems the better- reasoned approach. First, the policy does not specifically require a pre-loss election. The policy is, at best, ambiguous as to when the election should be made. Any ambiguity should be construed in favor of coverage. Knasel's reliance on the difference between "we cover" and "we will cover" to support it's pre-loss election requirement seems unfounded. Insurance policies, by their very nature, speak of future events which may or may not happen (contingencies). Use of the future tense is one obvious verb tense choice for such contracts, especially where an election by the insured during the policy term is concerned. The use of the future tense in the optional coverage for property of others or guests could refer to either a future election by the insured before a loss or a future election by an insured after a loss. Most ISO and other insurance policies are not entirely consistent in their use of verb tense, flipping back and forth between present and future tense. The ISO Homeowners policy involved in Knasel is like this. A study of verb tenses used in the current ISO Homeowners policy suggests that the future tense is more often used when referring to something which depends on a post-loss contingency, but, as stated, the grammar is not totally consistent.
Second, an insurer would be hard pressed to prove that a pre-lossnotification of the insured's desire to cover personal property of others is material to Homeowners underwriting considerations. The amount of Coverage C is automatically set by standard actuarial/underwriting practice at 50% of Coverage A. The policy does not require that the insured maintain a specified level of insurance to value, and no coinsurance or similar clause applies to personal property coverage. The insured has no stated duty to notify the insured whenever he significantly increases the value of his own or others personal property on the premises. Given the lack of insurance to value requirements, the lack of such duty is understandable. Even if it were to be argued that the property of others in question somehow increased the risk of loss due to the nature of the property (e.g., a friend's high explosives) or the value of the property (e.g., a friend's Picasso), there is no stated duty of the insured to notify the insurer of any increase in the risk insured, either as to the insured's property, or as to property of others.
Third, an insured homeowner cannot reasonably be expected to contact the insurer every time the insured obtains or relinquishes custody of property of others or guests. Yet, according to the Knasel rationale, this is what the insured would have to do in order to elect coverage and "provide the insurer with the opportunity to adjust the premiums accordingly." Is the insured expected to contact the insurer when a friend arrives for an hour's visit, and again when the friend leaves?
Given these considerations, it seems that pre-loss notice to the insurer of an insured's election to cover property of others is not required by the policy language or material to the insurer's underwriting or rate making. There is no need for the insured to, in the words of the Knasel court, "provide the insurance company with the opportunity to adjust the premiums accordingly."
