The Appellate Division, Third Department, recently considered an insurer's denial of coverage to a homeowner who had leased his summer home to a third party during the ski season. Villanueva v Preferred Mutual Insurance Company, N.Y. App. Div., 3d Dep't Jan. 14, 2008.
In Villanueva, the plaintiffs purchased a summer home in Greene County in 2002. Thereafter, they leased the home to two individuals for the ski season, from November 2004 to April, 2005. During the tenancy, a fire occurred, and the plaintiffs made claim for approximately $121,500 under their homeowner's policy. Defendant paid only $2,500, which was the limitation on coverage for personal property on the insured premises used for business purposes. Plaintiffs commenced suit, and after joinder of issue, both parties moved for summary judgment. Supreme Court granted the plaintiffs' motion and denied defendant's cross-motion. On appeal, the Appellate Division, Third Department, affirmed.
The Court recognized the general rule that an insurer bears the burden of establishing that an exclusion is stated in clear and unmistakable language, and subject to no other reasonable interpretation. In determining such issue, the focus is on the reasonable expectations of the average insured reading the policy language. Any ambiguity is construed in favor of the insured.
The policy at issue contained a $2,500 limit "[f]or loss to personal property used, in whole or in part, for 'business' purposes." The policy defined "business" as "includ[ing] the rental of property to others. It does not include the occasional rental for residential purposes of the 'insured premises' normally occupied solely by 'your' household."
The insurer argued that a rental for a period of five months was not an "occasional" rental within the meaning of the policy. The Court noted that the term occasional was not defined in the policy. In the Court's view, while the defendant's construction was "arguably reasonable", the insurer had failed to establish that its interpretation was the only reasonable interpretation or that the provision necessarily applied in this particular case. The Court cited several out-of-state cases which had interpreted the phrase "occasionally rented" to mean "now and then", and to include "vacation rentals". The Court held:
Plaintiffs' one-time rental of their summer home for a five-month period, with no definite plans to continue to rent the home, but with the intent to return to use the summer home exclusively themselves, fits comfortably within these alternative definitions. The ski season lease was indisputably a vacation rental, and defendant concedes that plaintiffs undoubtedly intended to use the house themselves again when it was not rented***.
This case demonstrates the strict inter-pretation of business pursuit exclusions and limitations in first-party coverage claims by New York courts.
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