Legal Memorandum: Rental Exclusion of a Homeowner's Policy

Issue: What authorities in Georgia or elsewhere relate to the question of whether injuries suffered by a tenant in a lease-purchase agreement with a homeowner fall within the rental exclusion of the homeowner’s insurance policy?

Area of Law: Insurance Law, Litigation & Procedure, Real Estate Law
Keywords: Homeowner's insurance policy; Exclusion of rental; Injuries suffered by tenant
Jurisdiction: Georgia
Cited Cases: 435 S.E.2d 258; 166 S.E.2d 317; 833 F. Supp. 688; 533 N.E.2d 1131; 453 So. 2d 554
Cited Statutes: None
Date: 00/01/2005

No case was found addressing the issues of whether the fact that the rental agreement also contains an option to purchase has any effect on (1) whether the rental exclusion in the homeowner’s policy applies; or (2) whether the premises may still be considered the landlord’s “residence.”  However, several cases were located that address the issue of what constitutes rental on an “occasional” basis sufficient to take the rental out of the exclusion (i.e. provide coverage).  The cases go both ways and are not readily reconcilable:

1.                  Martin v. Cotton States Mut. Ins. Co., 435 S.E.2d 258, 259 (Ga. Ct. App. 1993) (“occasional” not ambiguous; where house rented continuously for several years, rental was not occasional and exclusion applied).

2.                  State Farm Fire & Cas. Co. v. Wonnell, 533 N.E.2d 1131, 1132-33 (Ill. App. Ct. 1989) (“occasional” not ambiguous; even temporary rental on month-to-month basis until owner could sell home was not occasional and exclusion applied).  However, the dissent in Wonnell argued that the court should have found the exclusion inapplicable because “occasional basis” not defined in the policy and is ambiguous because subject to more than one reasonable interpretation.  Id. at 1133-34.

3.                  Ins. Co. of N. Am. v. Howard, 679 F.2d 147, 149 (9th Cir. 1982) (exclusion inapplicable; “a recent widow who leases her home for a one-year period . . . while she attempts to resolve her future plans has certainly not gone into the business of renting homes [and] [h]er action was […]

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