How many of us move into a home before purchasing it?  How many days do you have to move into a new home after purchase to keep your insurance coverage valid? AmGuard took the position that the new homeowner had no coverage because she was not living at the premises when she purchased the policy and did not move in before the fire.

Awilda Pimentel found herself in a tight spot when her new home, purchased on June 28, 2022, was damaged by fire on July 22, 2022. Instead of embracing her new residence as a fresh start, she was left with an insurance company insisting that she was not really “residing” at her property because she hadn’t set up a complete household.

The insurer’s argument was built on the claim that coverage would not attach unless the homeowner physically occupied the dwelling. The denial letter stated in part the following:

At the current stage of its investigation, AmGUARD has determined that the property which sustained the fire loss was unoccupied and does not quality as an ‘insured location’ or ‘residence premises.’ We understand you were residing elsewhere, that construction plans for 23 Redgate had been drawn, and that you’d not requested property coverage that would have attached even if you’d not yet resided on the premises.

AmGuard Insurance argued that if you haven’t moved in with your furniture, your claim is not valid.

The policyholder’s counsel sent a demand letter before the suit, noting in part the following:

The Supreme Judicial Court has noted that ‘[t]he main lesson to be drawn from our cases interpreting the meaning of the word ‘residence’ is that it is a word ‘of flexible meaning’.’ Shepardv. Finance Associates of Auburn, Inc., 366 Mass. 182, 190 (1974); Krakow v. Department of Pub. Welfare, 326 Mass. 452, 454 (1950) (“[r]esidence is a term of flexible meaning”). ‘ ‘Residence’ is not a word of uniform significance but is used in different senses.’ It is for this reason that Massachusetts Courts have broadly defined the word ‘residence.’ …Entwistle v. Safety Indem. Ins. Co., 32 Mass. L. Rptr. 561, 5 (Mass. Super. Ct., March 31, 2015, Krupp, J.) (a 10% sublimit did not require an insured to live at the ‘insured’s residence’ at the time of the loss, temporarily or otherwise). While it was certainly open to AmGUARD to draft the Residence Premises Endorsement in such a way so as to impose a minimum number of days per week, month or year physical presence at the Property was needed in order to satisfy the residency requirement, it tellingly did not do so. That AmGUARD did not include such a requirement counsels against interpreting the word ‘residence’ restrictively. See, Green Mountain Ins. Co. v. Wakelin, 484 Mass. 222,234 (2020) (‘where the insurer had the ability to include … language in its policy’ that clearly would have excluded disputed loss from coverage and ‘failed to do so,’ court will not interpret policy to exclude coverage for such loss); Vermont Mut. Ins. Co. v. Zamsky, 732 F.3d 37, 44 (!51 Cir. 2013) (applying Massachusetts law) (interpreting policy to cover specific liabilities where, had insurer wanted to exclude these risks from coverage, ‘it would have been child’s play to say so,’ yet insurer had not).

Further, if ‘where you reside’ were to mean only a place where an insured is living and/or occupying, the statutorily-required vacancy language found in the ‘Special Provisions – Massachusetts’ form (namely, AmGUARD is not liable for losses occurring ‘while the described premises, whether intended for occupancy by owner or tenant, are vacant or unoccupied beyond a period of sixty consecutive days’) would be contradicted or rendered meaningless as the Supreme Judicial Court long ago concluded that the language mandated by G.L. c. 175, § 99 (Twelfth) does not apply when a loss occurs within sixty days of the effective date of a policy….

AmGuard did not back down from its denial. Instead, a court threw a wrench at AmGuard’s reasoning. The policy itself clearly stated that coverage attached on the inception date of the policy – which, in this case, was the very day Pimentel purchased the home. The policy language, especially under the “Residence Premises Definition Endorsement,” did not require a homeowner to be fully moved in or even have a bed made up to be eligible for coverage.

The court looked closely at the words written in the insurance contract. It noted that the policy said coverage applied to the dwelling where the policyholder “reside[d] on the inception date of the policy period.” There was no small print that demanded overnight stays or a complete home makeover before protection started.

This was an important point. The insurer’s interpretation, which effectively meant that the policy would not cover the period between purchase and moving in, would have created a coverage gap that many reasonable homeowners would expect when purchasing coverage. For example, imagine buying a fancy umbrella that promises rain protection, but only if you step outside to test it in the rain. That would seem like a poor bargain, right?

The court’s rationale was as clear. When faced with ambiguous language, the law tells us to interpret it against the party that drafted it – in this case, the insurer. The court decided that a homeowner should not be punished for the simple fact that moving in often takes time. Instead of reading the term “reside” in a narrow, literal way, the court opted for a broader interpretation. This meant that even though Pimentel hadn’t spent the night in her new home, her actions – such as visiting daily, cleaning, and beginning to set up the house – showed that she intended to make it her residence.

The court was harsh regarding AmGuard’s interpretation:

In 1996, the SJC held that the 60-day vacancy exclusion does not apply to periods of vacancy beginning before the policy period, unless the policy began as an automatic renewal. See Pappas Enterprises, Inc. v. Com. & Indus. Ins. Co., 422 Mass. 80, 85 (1996). The court concluded that ‘[i]f a vacancy exists at the inception of coverage, it is hardly reasonable to believe that the coverage should terminate earlier than sixty days later,’ because ‘for the premium paid, the insurer has agreed to assume for sixty days the increased risk of loss that vacant premises present.’ Id. at 83-84. Thus, ‘the vacancy exclusion does not apply when the loss occurred within sixty days of the effective date of the policy.’

Pappas thus holds that the vacancy exclusion does not apply to a newly-acquired (or newly-insured) property until the property has been vacant for 60 days. See id. But AmGuard contends that if an insured property is vacant immediately after its acquisition—for even a single day—then coverage never attaches and the 60-day exclusion is irrelevant. Put another way, even though the vacancy exclusion cannot directly limit coverage within the first 60 days of a policy period, AmGuard contends that it can indirectly create such an exclusion using the definition of ‘residence.’ That is not a reasonable construction of the policy.

…

If, indeed, ‘reside’ has that meaning, some odd consequences would follow. Under that interpretation, a new policyholder must move into her new home before midnight on the ‘inception date,’ or else coverage never attaches. (Am. Compl. Ex. 1 at 56). In Pimentel’s case, that would mean that if she did not move in on June 28, 2022—the very day she closed on the house—she would never have coverage, no matter what happened later. Depending on the time of day the closing occurred, she might have had only a matter of hours to take up ‘residence’ in the new property before the clock struck midnight and the ‘inception date’ had passed.

That is not what an objectively reasonable new homeowner would likely conclude based on the policy language, particularly when language is considered in light of common sense and practical considerations. Consider, for example, the following hypothetical. A person closes on the purchase of a house late in the day on September 1. She has purchased a policy from AmGuard with a policy period beginning that same day. She has taken the normal steps that a person would take when moving, such as transferring utility services, changing her address on accounts and subscriptions, filing a change-of-address form with the post office, and arranging for her furniture and other possessions to be moved into the house. As of 5:00 p.m. on September 1, she owns the house. Perhaps she is planning to move in first thing on the morning of September 2. Or perhaps the moving van is not scheduled to arrive until September 3. Or perhaps, like many people, she intends to do some painting and perform minor repairs on the property, and does not intend to move any furniture into the house until September 15. Regardless of the reason, she does not sleep in her new house on the night of September 1. That night, the house burns down.

Is the loss covered? The hypothetical reasonable homeowner would surely expect that it was…

The narrow construction of ‘reside . . . on the inception date’ therefore leads to somewhat bizarre results. If coverage depends entirely on where the policyholder has set up a household on the ‘inception date’—which is a single period of 24 hours—it does not matter whether she moves into the house the very next day, some later day, or not at all; the property will never be covered. Thus, even if the hypothetical policyholder moved in the day after she closed, and the structure burned down eleven months later, there would be no coverage, because the policyholder did not ‘reside’ in the house on the ‘inception date.’ Many policyholders would therefore pay a year’s premium for coverage that never came into being.

That is an absurd result. No objectively reasonable purchaser of such a policy would expect that coverage would attach on June 28, but only if she actually took up residence before the stroke of midnight that night, and otherwise never at all.1

Ultimately, the court ruled in favor of Pimentel, granting summary judgment on all counts, including statutory bad faith.

This decision reinforces the idea that an insurance policy’s language should reflect common sense and a homeowner’s reasonable expectations. The insurer’s attempt to squeeze in an extra condition by demanding physical occupancy on the inception date was seen as a ploy to sidestep coverage. For homeowners, this ruling is a reassuring reminder that coverage begins when you buy the policy, not when your moving truck finally pulls up.

Thought For The Day

“The magic thing about home is that it feels good to leave, and it feels even better to come back.”
—Wendy Wunder

1 Pimentel v. AmGUARD Ins. Co., No. 23-11005 (D. Mass. Oct. 23, 2024).