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A New York court has ruled that an insured's “passing comment”to his insurance agent that he might rent out his home when hemoved to Ohio was insufficient to put the insurer on notice of achange in the property's use.

The Case

Jerry and Linan Sun sued their homeowners' insurancecarrier, Allstate Indemnity Company, alleging that Allstate hadbreached the policy when it failed to indemnify them for theloss they sustained from a fire on March 5,2015 at the home they owned in Blauvelt, New York.

The Suns contended that from 2002 through November 4, 2014,Allstate made, renewed, and issued to the Suns a “Deluxe PlusHomeowners” insurance policy covering the property. They contendedthat, in May 2011, Mr. Sun had advised his Allstate agent that heand his family had moved from New York and were residing in Ohio.At this time, the Suns asserted, Mr. Sun requested that hisautomobile policy with Allstate be canceled, and Mr. Sun said thathe planned to sell the property or use it as a rental property.

The Suns argued that Allstate then changed the Suns' residenceand home address to reflect the move to Ohio. They contended thatthis demonstrated that both the Allstate agent and Allstate wereaware that they resided in Ohio as of May 2011 and, therefore, thatthere had been a change in the title, use and occupancy of theproperty as of that date.

Failed to meet their obligation

The Suns moved for summary judgment, arguing that this change ofresidency and use was in violation of the Allstate underwritingguidelines because they were no longer using the property as theirprimary residence. According to the Suns, inasmuch as Allstate hadknowledge of this ongoing violation, but had taken no action toupdate or change their homeowners' insurance policy to reflect thechange in residency and use, Allstate had waived any defenses tocoverage of the Suns' insurance claim.

The Suns also argued that Allstate should be estopped fromclaiming non-residency at the property as a basis for the denial ofcoverage for the March 5, 2015 fire loss because it collectedinsurance premiums and continued to insure the property as aprimary residence on the date of loss.

Allstate also moved for summary judgment, contending that it hadproperly denied the Suns' claim because the definition of“dwelling” in the policy required that the property be where theSuns' “reside,” and the Suns had failed to meet their obligation toinform Allstate that they had begun using the property as arental.

The Allstate policy

The Allstate policy provided:

In reliance on the information you have given us, Allstateagrees to provide the coverage indicated on the PolicyDeclarations. In return, you must pay the premium when due andcomply with the policy terms and conditions, and inform us of anychange in title, use or occupancy of the residencepremises.

The court's decision

The court granted summary judgment in favor of Allstate.

In its decision, the court found that the Suns' “passing commentwith an Allstate agent” in May 2011 that they were thinking aboutselling or renting out the property was “not sufficient to putAllstate on notice or inform it” that the Suns had in fact beenrenting out the property since March 2012.

The court said that it was “unreasonable to impute knowledge” onAllstate “from a single comment made before the property had beenactually utilized as a rental property.”

Related: Who has the responsibility to advise insureds aboutpolicy limits?

The court said that the policy “clearly indicate[d] that [theSuns] needed to inform Allstate of any change in title, use oroccupancy of the Property,” and it ruled that they had not doneso.

It also rejected the Suns' assertion of the doctrines of waiverand estoppel, finding no evidence that Allstate had voluntarily orintentionally relinquished its right to be informed of any changein title, use, or occupancy of the property.

The court also said that there was “insufficient evidence” thatAllstate “had any knowledge, let alone full knowledge of the factthat tenants were living at the property from March 2012 until thedate of loss.”

It concluded by ruling that Allstate had never taken “any actionthat would have lulled the [Suns] into sleeping on their rightsunder the insurance contract.”

The case is Sun v. Allstate Indemnity Co., 47N.Y.S.3d 895 (Sup.Ct. Rockland Co. 2017).

Steven A. Meyerowitz, Esq., is the directorof FC&S Legal, the editor-in-chief of the InsuranceCoverage Law Report, and the founder and president of MeyerowitzCommunications Inc. Email him at [email protected].