Expert Commentary

Who Really Lives (or Doesn't) in Your Household?

Given the broadening range of risks within modern families, the boundary lines between resident and nonresident are of great significance in determining coverage issues, including whether an insurer has a duty to defend. Determining residency in a blended-family society is, in many ways, a moving target for insurers and insureds. This article examines the issues raised by nondefinition of "resident" in homeowners insurance policy and how it is sometimes construed.


Current Trends and Issues
January 2005

Justice Roger Trainer once observed that, "Plain words, like plain people, are not always so plain as they seem." Take the common language about who is an insured in homeowners policies as an example. The language of the Insurance Services Office, Inc. (ISO), Broad Form HO 2 policy provided below is representative.

"Insured" means you and residents of your household who are:

your relatives; or

other persons under the age of 21 and in the care of any person named above.

  • "You" includes the named insured and spouse if a resident of the same household.

The key terms "residents," "household," "relative," and "in the care of" are undefined and have been the subject of considerable dispute and litigation. If past disagreements over their meanings aren't enough reason to prompt insurers to define what the terms mean, two additional factors converge to highlight the problem: (1) dynamic sociological changes in family structure, and (2) varying court interpretations of the terminology.

Sociological Changes in American Families

Since many of our conceptions of what insurance terms mean may be grounded in an earlier social paradigm similar to that portrayed in "Leave It to Beaver" television series, insurers that fail to adapt to accelerating changes in the American family structure may be in for trouble in the future. Consider, for example, possible implications for risk of the following statistics and trends.

Census figures show that the ratio of marriages to divorces is about 2:1; that divorces annually affect over a million children (16.8 per 1,000 children); and children of divorce are more likely to suffer from psychological or emotional problems, drop out of school, incur teen pregnancies, and end up in prison for aberrant behavior. Of all weddings, 43 percent of are remarriages for at least one parent, thereby giving rise to a continuing increase in the number of blended families in which children, parents, and grandparents may share no blood relationships.

Blended families not only combine offspring and in-laws from previous marriages, but also may create a fertile ground for domestic violence by bringing together inhabitants who hold deep-seated, hostile feelings toward one another. Increased step-parenting and live-in significant others may contribute to sexual abuse and other forms of violence against children. Persons living in strained family circumstances may engage in acts of displaced aggression toward others, thereby incurring greater liability for everyone. In other words, it isn't just the family-dog threat that insurers need to be concerned about.

Who Lives Here?—What Courts Say

Since disagreements about residency often end up in court, a review of how judges resolve the issue is instructive; indeed, the directions taken by judges show that rather than clarifying matters, courts instead may clutter them. Among the factors courts often examine are issues of domicile versus residence, dual residency, and how a grant of child custody in divorces confers residency on children.

Domicile and Residence

It is customary to consult a dictionary for guidance when insurance terms are undefined, technically for the purpose of giving the words their ordinary meaning. Webster's Ninth New College Dictionary accords the following definition to "resident": "living in a place for some length of time. RESIDING." To "reside" is "to dwell permanently or continuously." Although policy language does not mention the term "domicile," some state statutes and common-law principles distinguish domicile from residence.

Consistent with this, "resident" is not necessarily "domicile," view. A New Jersey court distinguished the two as follows: Domicile is "the place where a person has his true, fixed, permanent home, and principal establishment, and to which, whenever he is absent, he has the intention of returning." Conversely, a residence lacks "the elements of permanency, continuity and kinship with the physical, social and political attributes which inhere in a home." The court added, "intention adequately manifested is the catalyst which converts a residence from a mere place in which a person lives to a domicile." [See Miller v USF&G, 127 NJ Super 37 (1974).]

This "intention adequately manifested" adds a subjective element to the formula for determining resident status. Knowing where a person resides is insufficient—where that person intends to live is also a vital part of the formula. To allay cases of adjuster jitters, some courts temper this subjective element. For example, a California court asserted that exclusive reliance on this subjective indicator "would mean that coverage expands and contracts on the whimsical plans of a dependent family member." [See Utley v Allstate Insurance Company, 19 Cal App 4th 820 (1993).]

Other venues make no distinctions between resident and domicile. In West Virginia, for example, "The word residence, as used in divorce statutes, is almost universally construed to be the equivalent of domicile." [See Taylor v Taylor, 128 W Va 198, 204 (1945), cited at fn. 5, Farmers Mutual Insurance Company v Hubert Junior Tucker, 213 W Va 16 (2002).] Since blended families are usually the result of divorce proceedings, a prudent adjuster may need to consult a divorce law specialist in making final determinations of how "resident" is applied in a particular jurisdiction when determining a child's residency.

Dual Residency

For insurance purposes, many states recognize that a person may have more than one residence, a status called dual residency. [See New York Central Fire Insurance Company v Lawrence W. Perkey, et al., 747 NYS 2d 878 (2002.)] Factors that call attention to dual residency include the ownership of second homes, child custody assignments in divorce cases, adult children in the process of establishing independence from parents, and elderly parents moving in with children. However, while the view in some states is that one can reside in more than one place, this is not a universal rule: Montana, by statute, does not allow dual residency.

Custody versus Residency

Generally, it may be assumed that in cases of divorce, residency is established by the custody awarded in the divorce decree. (Census figures show that 72 percent of custody awards are to the wife, 9 percent to the husband, and 16 percent are for joint custody.) That a divorce decree is not the final word though is well illustrated by the case of Miller v USF&G, 316 A2d 51 (NJ 1974). In Miller, the divorce decree granted custody to the mother, but the court determined that in actual practice both parents had custody; consequently, the child was covered under both homeowners policies (a finding of dual residency). Thus, the determining factor is not what the decree says, but what the people involved actually do that matters most. Insurers, therefore, must look beyond formal custody documents to determine residency.

Qualitative and Quantitative Factors: It's More Than Just Headcount

A Georgia court set forth the following guideline for establishing resident status: "The aggregate details of the family's living arrangements must be considered ... not any one factor." [See Rainey v State Farm Mutual Automobile Insurance Company, 257 Ga App 618 (1995).] In this approach, the inquiry is directed largely at measuring quantitative indicators and much of the focus is determining whether separate households have actually been established. As the court noted in Rainey, "Physically maintaining living accommodations in the insured's home is one, but not the sole, consideration" in determining residency."

New Jersey courts crafted the concept of a "substantially integrated family relationship" to ascertain resident status. Under this label, courts apparently look not only at the quantitative elements but also quantitative ones as well. Quantitative inquiries encompass questions about how people function together as family members in such activities as sharing meals, expenses, and pursuing common goals based upon common interests.

With the New Jersey and Georgia views in mind, it is easier to understand how courts have determined that people don't have to live together under the same roof to qualify for resident status [Gibson v Callahan, 158 NJ 662 (1999)] and that resident of a house does not automatically qualify one as a resident of a household for insurance purposes [Hawkeye Security Insurance Company v Sanchez, 460 NE2d 873 (Ill App 1984)].

Conclusion

Since failure to define "resident" contributes to significant litigation, one might ask why insurers don't read the judicial tealeaves and make appropriate amendments. Could it be that under the current language, insurers find it easier to deny coverage? For example, insurers can argue that a child visiting a parent on the weekend who causes property damage or bodily injury to others is not a resident, and that a negligent divorced parent who is held responsible for bodily injury suffered by a child during a visitation period and is sued by the other parent is a resident. Whether true or not, plaintiffs' attorneys will most likely catch on to any apparent company inconsistency in claim adjudication whether it occurs by design or through lax claim management.

For claims personnel, lack of clarity imposes an added burden in investigations to make sure that their determination of who is a resident demonstrates a diligent effort to pursue quantitative and qualitative indicators of resident status and to show familiarity with the prevailing case law.

Finally, claimants may add ammunition to arguments for coverage by pointing out that "resident of your household" language has been found ambiguous [Gibson v Callaghan] and contend further that different interpretations from one jurisdiction to another of what the word resident means automatically qualifies the term as ambiguous. Given this possible scenario, perhaps insurers should more seriously heed the words of Justice Traynor and assign plain definitions to plain words so plain people can be deterred from giving insurers a plain whipping in court.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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