A recent unpublished decision in the California Court of Appeal should be a wake up call to property owners who claim that they occupy their home when in fact they rent it out. As a result of lying on an insurance application, the home owner in Lopez v. Allstate Insurance Co. was not covered by his insurance policy when the property caught fire.
The Plaintiff bought the house in 2004. On the insurance application, the homeowner wrote the house had eight rooms and one occupant when in fact the house had more than eight rooms and had three tenants. The policy was soon cancelled for an unrelated reason. In 2005, after replacing the roof of the house, the homeowner applied for property insurance again. The application stated the house was 1,600 square feet when the house was in fact 3,000 square feet. Further, the application stated there was only one family unit or apartment on the property.
The new policy provided that a dwelling was “a one-, two-, three- or four-family building structure which is used principally as a private residence and located at the address stated on the Policy Declarations,” and that “Building structure” was a structure with walls and a roof.
In 2009, a fire destroyed the house. In response, the homeowner filed a claim on his insurance. It was soon discovered the house had been split into six “studio units” rented to six individuals. Each “studio unit” had a lockable door, a microwave, a table, chair, and refrigerator. The tenants shared bathrooms. Allstate paid the homeowner $13,800 for loss of rents. Upon further inspection, it was discovered the house was much larger than stated in the application. Total damages were estimated at $371,000 although the policy limit was $133,121 for the dwelling and $13,312 for other structures.
In response, Allstate rescinded the insurance policy and declared it void refunding the premiums to the homeowner. The homeowner filed a lawsuit alleging Allstate breached the landlord’s policy. At trial, the homeowner lost because the Court found that he made material misrepresentations or concealed material facts on his insurance application.
On appeal, the Court agreed that the homeowner made material misrepresentations by not stating the correct size of the house and the number of “family units” residing in the house. Further, the Court found that the homeowner’s landlord policy did not cover the loss. The definition of a dwelling was limited to a one, two, three, or four family structure. Here, the homeowner had rented the home to six separate “family units.” Although the individual units shared a bathrooms and a kitchen, the Court found that they were separate living units and thus beyond the scope of the homeowner’s insurance policy.
Although this case cannot be cited, it provides some guidance to landlords who rent rooms or beds in a house. An insurance policy will generally be void if the homeowner makes material misrepresentations or conceals material facts on the insurance application. Here, the homeowner should have had an insurance policy that would have covered having six individual units and should have been upfront about the size of the structure and the manner in which the landlord was renting rooms in the house. This situation could arise in a sober living home, a house for college students, or other house where the landlord rents rooms with individual leases to each resident (as opposed to one lease for an entire house).