The post from yesterday, Developers, commercial owners and property managers need to be aware of vacancy clauses, got a response from insurance educator Bill Wilson. Wilson noted precisely the following:
Equally important is what is “free”. Traditionally, vacant meant no people and no content to speak of. Then the ISO changed the definition in its forms, as did many non-ISO insurers, so that a building could be partially occupied or hold substantial amounts of contents and be considered vacant.
Merlin Law Group attorney Ed Eshoo wrote an excellent post, What constitutes a residence or building under construction or renovation for the purpose of excluding a vacancy? on this topic. He noted:
The typical vacancy provision in a commercial property policy is modeled after the ISO Building and Personal Property Form (BPP form). It excludes loss or damage caused by vandalism, sprinkler leaks, broken glass, water damage and theft or attempted theft if the building has been vacant for more than 60 consecutive days. For all other covered causes of loss, including fire, the carrier will reduce payment by 15 percent if the building has been vacant for more than 60 consecutive days before the loss occurs.
Vacancy provisions in homeowners and commercial property policies typically state that properties that are “under construction,” “under construction,” “under construction,” “under renovation,” or “under construction or renovation” are not considered vacant. “Construction” is not limited to the erection of a new structure; it contemplates “renovation,” “remodeling,” and “addition,” though these terms are not usually defined. Courts have concluded that when “renovation” is used in conjunction with “construction,” it includes any activity that restores the property to its former condition, such as repairing broken water lines, repairing or replacing damaged roof tiles, toilets, and porches, and replacing drywall or a ceiling. Under this interpretation, a wide range of construction or renovation activities would prevent a property from being considered vacant.
Homeowner’s property policies typically do not define “vacant” or “unoccupied,” so courts give these terms their plain and ordinary meaning. Although often used interchangeably, the terms have different meanings: vacant meaning empty or void of content, and unoccupied meaning lacking in the regular presence of people.
According to the ISO BPP form, the definition of vacant depends on whether the policy is issued to a property owner or a tenant. For owners, the property is considered the entire building and is vacant unless a lessee or subtenant leases at least 31 percent of its total square footage and uses it to conduct ordinary business, or the building owner uses it to conduct ordinary operations. For tenants, the building is the unit that the tenant rents and it is vacant when the premises do not contain enough movable property to carry on ordinary business.
In yesterday’s post, attention was drawn to the insurance company’s motion regarding the vacancy issue. Earlier in the case, the policyholder’s attorney referenced and quoted a 2011 post by Merlin Law Group attorney Larry Bache. That post,Insurers constantly confuse the term “vacancy” with the term “vacation”. What is the difference?made the following points:
“Free” and “unoccupied” are not synonymous. “Vacant” means completely empty (i.eabsence of animate or inanimate objects), while “unoccupied” means absence of regular presence of people (i.e, lack of animated objects). This construction has been followed by courts throughout the country.
The difference between the definitions of the terms is crucial if a policy contains a “vacancy” exclusion, but not a “vacancy” exclusion. It is important for policyholders to know the difference because many insurance adjusters do not. This results in regular wrongful denials of insurance benefits.
Perhaps the best example of an unoccupied, but not vacant structure would be a fully furnished Tampa Bay home owned by a New York resident who lives in Tampa Bay for only three months during the winter. Such a home would be empty for the rest of the year, but since the house is filled with all the inanimate objects normally found in a home, it would probably not be classified as “vacant”.
Some policies include “vacancy” exclusions and others include “vacant, unoccupied or unoccupied” exclusions. The latter is much more common and constitutes a much wider exclusion. In fact, some courts allow these terms to be used interchangeably if that specific exception is within the policy. Unfortunately, some claims adjusters apply the “vacant, unoccupied, or unoccupied” exception to the much narrower “vacant” exception. The results are disastrous, requiring policyholders to fight for the benefits they are owed under their policies.
The bottom line for all policyholders is to be aware of what exclusions are in their policy. If they choose to leave their building for an extended period of time, it is important to contact the insurer and determine if the building will remain covered by the current policy or if they will need to purchase another coverage.
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– Thomas Aquinas