Is My Rental Property Covered by my Insurance Policy?

When purchasing insurance for a property you own, you are usually given two different options depending on how you intend to use the property. It’s important to know how you intend to use the property before purchasing insurance as it will dictate what type of insurance will cover you in the event of loss. Will you be using it as a rental property? Will you be using it as a new home for you and your family to live in? Will this be a property you own but will be occupied by a family member? These questions will help dictate what type of policy you should have if you intend to file an insurance claim.

Homeowner Policies

If you intend to live in the property on a full-time basis, you’re likely going to be offered a “Homeowner’s Policy” of insurance such as an HO-3 policy. These types of policies are sold to people who are going to be using their property as their primary residence and live there on a full-time basis.

Dwelling Policies

If you intend to purchase a property that you are going to be renting to tenants or a family member and you do not intend to live on the property on a full time basis, you will likely be offered a “Dwelling Policy” of insurance such as a DP-3 policy. These Dwelling Policies are the types of insurance policies that are sold to people who want to be the owner of the policy but do not have any intentions to live in the property and instead wish to have another person or persons living in the property. These policies apply to properties that are going to be rented to tenants or occupied by tenants.

What happens if you have a homeowner’s policy on a rental property?

If you have a Homeowner’s policy on a property that you’re renting out or intend to rent out soon, you better make sure to contact your insurance agent to notify them of this change before a loss occurs. In a recent court decision, Arguelles v. Citizens Property Insurance Corporation, the insured Donato Arguelles had owned a condominium that he was living in until he accepted a job in New York which required him to move. He began leasing his Condo unit in Miami to a tenant while living in New York. He had a homeowner’s policy issued on his Miami condo and it was not changed to a dwelling policy when he moved. Shortly after moving, his homeowner’s policy was renewed by Citizens, but was not changed to a Dwelling policy. Citizens accepted the premium and provided him coverage afforded by a Homeowners Policy.  During this time, the tenants notified Mr. Arguelles about a water leak coming from the kitchen. Mr. Arguelles reported the claim to Citizens who then began conducting an investigation of the loss. During a recorded statement, Mr. Arguelles notified Citizens that he was no longer living at the property. Eventually, Citizens denied coverage over the water leak claim, contending the leakage “was long-term (several weeks to months) moisture exposure,” thus, was subject to an exclusion, as the policy specified “[w]e do not insure for loss caused directly or indirectly by . . . the presence or condensation of humidity, moisture or vapor, which occurs over a period of time.” Arguelles, obviously unhappy with Citizens’ denial, filed a lawsuit seeking a declaration of his right to coverage under the policy.

Citizens responded to Mr. Arguelles’ lawsuit by arguing that since he was not using his property as a “residence”, but instead as a “dwelling” because he was not living at the property and was renting to tenants, his claim or any claim filed under his homeowner’s policy would not be covered. Mr. Arguelles argued that the insurance policy was ambiguous as to what a “residence premises” was and that it could be interpreted to mean that it also covered properties that were not occupied by the policy holder but instead rented to tenants. The trial court agreed with Citizens’ position and entered judgment in the insurance company’s favor. Mr. Arguelles promptly appealed.

The Appellate court examined two definitions of “residence premises”. The court looked toward the dictionary as to how it defined “Reside” and found two definitions, “[t]o live in a place permanently or for an extended period of time.” The court took these definitions and stated because Arguelles was living in his established abode in New York, and his Miami condominium was solely occupied by his two tenants, he was not entitled to coverage under either definition. Unfortunately for Mr. Arguelles, due to not understanding the significance between a Homeowners Policy and a Dwelling Policy, Mr. Arguelles will not receive coverage for his loss.

In summary, be sure to keep your insurance agent up to date about how your residential property is going to be used. If you are living in a property full time but want to move out and start renting the property out to a tenant, you should consult your insurance agent in order to change your insurance policy beforehand. Otherwise, you may end up with a denied insurance claim in the future that would have normally been covered. If you have a situation where you are unsure about whether the damages to your home are covered by your policy, Barnard Law Offices can help. We specialize in handling property insurance issues. Give us a call today at (305) 665-0000 or contact us online to learn how we can help you get insurance coverage for your home or property.

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Erik Tyler Barnard, born and raised in Miami, Florida, is passionate about Insurance Law. Since 2015, Erik has played a critical role in several trials where he, alongside the talented trial attorneys at Barnard Law Offices, L.P., has recovered millions of dollars for homeowners where their insurance claims have been wrongfully denied or underpaid.
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