Edward Eshoo | Property Insurance Coverage Law Blog | October 8, 2018
The typical vacancy provision in a homeowners property insurance policy is patterned after the Insurance Services Office (ISO) Homeowners 3-Special Form (HO-3 form)1 and excludes coverage for damage caused by vandalism if the dwelling has been vacant for more than 60 consecutive days before the damage occurs.2
The typical vacancy provision in a commercial property policy is patterned after the ISO Building and Personal Property Form (BPP form).3 It excludes loss or damage caused by vandalism, sprinkler leakage, glass breakage, 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.4
Vacancy provisions in homeowners and commercial property policies typically state that properties “being constructed,” “in the process of 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 “additions,” although those terms usually are not defined.5 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 waterlines, repairing or replacing damaged ceiling tiles, toilets, and porches, and replacing drywall or a roof.6 Under this interpretation, a broad range of construction or renovation activity would prevent a property from being deemed vacant.
To support an argument that a vacancy exclusion does not apply because the dwelling or building was under construction or renovation, evidence should be presented that shows substantial, continuous construction or renovation activity. Sporadic entry is insufficient. Inquiry should be made as to the ongoing presence of construction personnel, including the number of people who worked on the project, the amount of time they spent in the building, and how much of the building they occupied.
1 ISO Form HO 00 03 05 11.
2 Homeowners property policies usually do not define “vacant” or ““unoccupied,” so courts give those terms their plain and ordinary meaning. Although they are frequently used interchangeably, the terms have different meanings: vacant means empty or without contents, and unoccupied means the lack of people’s habitual presence.
3 ISO Form CP 10 30 10 12.
4 Under the ISO BPP form, the definition of vacant depends on whether the policy is issued to a building owner or a tenant. For owners, the property is considered the entire building, and it is vacant unless a lessee or sub-lessee rents at least 31 percent of its total square footage and uses it to conduct customary business operations, or the building owner uses it to conduct customary operations. For tenants, the building is the unit the tenant rents, and it is vacant when the premises do not contain enough business personal property to conduct customary operations.
5 See, e.g., TRB Invs., Inc. v. Fireman’s Fund Ins. Co., 145 P.3d 472 (Cal. 2006); Warren Davis Properties V, L.L.C. v. United Fire & Cas. Co., 111 S.W.3d 515 (Mo. App. 2003).
6 See, e.g., Farbman Group v. Travelers Ins. Co., 2006 WL 2805646 (E.D. Mich. Sept. 28, 2006); Baker v. Nationwide Mut. Ins. Co., 2013 WL 1905334 (Ohio App. May 6, 2013).