Insuring Rental Property under a Homeowners Policy is Just Plain Stupid
It is axiomatic – a certainty – that most people do not read their insurance policies nor do they always use insurance to protect themselves properly. State Farm tried to help its insured. It explained to Paul Terrell and Rica Tseng that they needed a rental policy on their rental property and they bought it. They decided, later, to move into the rental property and changed the policy to a homeowners policy but they didn’t move in. Instead, they rented it out but never changed the policy back to a rental policy.
That clear and obvious mistake resulted in a no coverage decision in Paul Terrell et al. v. State Farm General Insurance Company, A152541, Court of Appeal of the State of California First Appellate District Division One (September 26, 2019).
Mr. Terrell and Ms. Tseng had been renting their San Francisco home to tenants for eight years when the front porch collapsed, causing injury to a tenant. When the tenants sued, appellants sought defense and indemnification from their insurance provider State Farm General Insurance Company (State Farm).
State Farm denied their claim, however, because the homeowners insurance policy excluded coverage for injuries arising out of an insured’s business pursuits or the rental of their home. Terrell and Tseng (the “insureds”) sued State Farm for breach of contract and bad faith denial of their insurance claim.
The insureds owned a San Francisco property. They moved out and began renting the Property in 2003. Eventually, when the tenant was still in the property, the porch area in front of the property’s front door collapsed. Mary, who was standing on the porch at the time, fell through a hole and sustained injuries from the fall.
© 2021 – Barry Zalma
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 52 years in the insurance business. He is available at http://www.zalma.com and firstname.lastname@example.org.
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