‘Vacancy’ confusion in a home insurance policy: what the court said

A Nova Scotia court awarded more than $225,000 against a home insurer after its telephone agent placed coverage for a couple’s newly purchased house, when in fact it was unclear if the property was vacant, thus triggering a policy exclusion for water damage.

Nova Scotia’s Supreme Court upheld TD Insurance’s policy exclusion for the new property being vacant. But it found the insurer’s agent was negligent for two reasons.

First, the agent “did not tell [the homeowners] about the [policy’s] vacancy exclusions as required by [TD Insurance’s] Homeowner Quoting Procedure,” the court found in a decision released last week. The agent did not believe this needed to be done because the homeowners said they planned to take up residence in the new home.

Second, the homeowners were ambiguous about their plans to move in. And yet, “without asking any clarifying questions whatsoever, [the agent] proceeded to place coverage for the property as an owner-occupied dwelling,” the court ruled.

As a result of these two breaches of the standard of care owed to policyholders, the court ruled, “it is more likely than not that but for [the agent’s] negligence, the O’Briens would have taken the necessary steps to ensure that they had full coverage over the [new] property at the time of the loss. They would not have left the property vacant.”

The court noted the confusion around vacancy emerged from a unique set of facts.

Sarah and David O’Brien are residents of Halifax, Nova Scotia. As of 2018, they had had lived in their home at 6721 Oakland Road, Halifax, for more than 10 years. In September 2018, the O’Briens noticed their neighbours directly across the street at 6262 Oakland Road had listed their house for sale. They made an offer to their neighbours and bought the property on Oct. 11, 2018. The closing date was Nov.  30, 2018.

Knowing they needed insurance on their new home, Sarah O’Brien contacted a telephone agent at TD Insurance on Nov. 27, 2018 to add the new property to their existing home insurance policy. Following underwriting guidelines, the agent asked if the new home would be vacant at any point after the sale.

Related: Defining vacancy: Why the court upheld insurer’s denial of a $100K water damage claim

According to a transcript entered into evidence, the following conversation took place:

SARAH O’BRIEN:     [The new home is] actually just across the street.

TD AGENT:      Oh.

O’BRIEN:     Yeah, is it better if one of us stays there, like how does that affect … I mean we can just walk across the street every day.

TD AGENT: It’s just because I’m trying to figure out if we’re going to need the … like a vacant … like a vacant home.

O’BRIEN: Okay. Well it’s not really vacant because we’ll go over every day.

TD AGENT: Uh-huh.

O’BRIEN: Because we’re going to renovate.

EBOTOKE: Okay.

O’BRIEN: So it won’t really be vacant in the sense that no one will be in it. Someone will be in it every day.

The TD agent paused the phone conversation to get advice from more senior agents. One of these advisors testified in court that “Ms. O’Brien’s explanation for why the property would not be vacant was ‘completely wrong,’ and not consistent with how TD Insurance interprets the definition of vacancy in handling claims.”

However, despite the confusion over whether the new home would be vacant at any time after the sale, the insurance agent placed coverage on the new home on the assumption the home would be occupied. Sarah O’Brien received a copy of the policy by email before the end of the conversation.

On Jan. 1, 2019, David O’Brien discovered significant water damage at the new property. The O’Briens immediately called TD Insurance to report the damage. Security National informed them three days later that the homeowner policy would not provide coverage for the water damage.

In their denial letter, Security National stated: “Your policy does not cover water damage to your property when vacant.” It went on to define vacancy as, “in the case of a newly constructed house, no occupant has yet taken up residence.”

The court upheld the policy exclusion, finding that the O’Briens had not “taken up residence” in their new home.

“The evidence is clear that neither of the O’Briens were living at the [new] property on either a full time or a part time basis at the time of the loss,” the Supreme Court of Nova Scotia ruled. “As Dr. O’Brien testified, it was never their intention that he would live in the property and sleep there while they waited for their existing home to sell.

“Although the O’Briens spent time in the [new] property, treating it as an extension of their existing home – a ‘man shed’ or a ‘garage kind of thing’ – they did not live there. They lived in their home at 6271 Oakland Road. The property was vacant, and coverage for the water damage is excluded under the policy.”

Feature image courtesy of iStock.com/onurdongel