Often there is no question about a loss itself being covered. Few insureds care which insurance company pays a loss, or to which policy or line of coverage a company may charge it, as long as full payment is made. But there are at least five aspects of the question “is carpeting dwelling or contents?” that can, and often do, give rise to serious arguments:

1.     Insurance on one item—most often the dwelling—covers the peril that caused the damage, while named perils insurance on the other item does not. For example, if the sun's rays coming through a window scorch both a floor and a sofa, there is no exclusion on the open perils HO 00 03 10 00 for damage to the floor (part of the dwelling); however, scorch is not a named peril for contents coverage. (This example is a good selling point for open perils dwelling and contents coverage, as with the ISO HO 00 05 10 00, introduced with the 2000 homeowners program, or the AAIS form 5.)

2.     Although the peril that caused the loss is the same for both items, the amount of insurance under one item is exhausted by payment of loss to that property, as when a fire completely destroys a dwelling and contents, and contents coverage is exhausted.

3.     The insured has purchased coverage on one item, but not the other—for example, a fire policy on a dwelling only.

4.     Coverage for a building is for replacement cost while coverage for contents is on an actual cash value. (Note that most homeowners policies specifically exclude carpeting from the building replacement cost provision. Attaching homeowners personal property replacement cost endorsements ISO HO 04 90 10 00 or AAIS ML-55 extends replacement cost coverage to carpeting—whether covered as building or personal property.)

5.     As in the Balch case considered later in this discussion, there are separate insurers on the two items and the question is which insurer should pay the loss.

As can be seen from the above, in some cases it is advantageous for the insured to treat carpeting or draperies as part of the building; in others, as contents. The lack of resolution in the policy language is therefore open to argument, especially where the question is confronted only after a loss has occurred.

The language with respect to carpeting under the ISO homeowners policies reflects the legal ambiguity concerning treatment of this property either as a part of the building or as personal property. Neither the coverage description for building or for personal property mentions carpeting. The only mention of carpeting is in the loss settlement provisions where, along with awnings (typically a building item), household appliances (building items if built in, personal property if free standing), outdoor antennas (building items if attached to the dwelling, structures if free standing), and outdoor equipment (building, structure, or personal property, depending on what kind of equipment it is), carpeting is listed separately from either building or personal property. Like personal property, it is covered for actual cash value unless otherwise endorsed, clearly limiting payment for carpet loss to its depreciated actual cash value, but leaving its status as either building or personal property unresolved.

This same ambiguity carries over to personal property replacement cost endorsement HO 04 90. Under this endorsement, replacement cost coverage is provided for coverage C personal property, and “if covered under this policy,” carpeting (along with those other items discussed in the preceding paragraph as insured only for actual cash value).

In an actual loss situation, where it is advantageous to treat the carpeting as a building item, an insured can argue that if the insurer had not intended to treat carpeting as a part of the building, it would be unnecessary to list carpeting separately from personal property in the loss settlement clause. On the other hand, where treatment as personal property is more advantageous, the legal status of the carpeting as personal property—particularly if the carpet is laid over a finished floor—may be claimed as a basis for recovery under the personal property coverage.

The American Association of Insurance Services homeowners forms more strongly suggest coverage as building items for carpets, and curtains and drapes as well, by use of a separate replacement cost provision applying to buildings only, and exempting carpeting, curtains, and drapes from its application.

Under earlier AAIS homeowners forms, these items were excluded from the building coverage and specifically mentioned as covered as personal property “all whether or not permanently installed.” Thus, clearly, the insurance contract provided that this property was covered as personal property, leaving no question as to its status for a court to decide.

The current language, although seeming to reverse the treatment, does not as clearly make the building coverage apply. This leaves open the door to legal argument concerning carpeting's status as a building item or as contents. The current replacement cost provision is that replacement cost terms do not apply to: awnings and canopies; appliances; carpets; and window coverings.

This ambiguity concerning carpeting is also reflected in the Guiding Principles, used by adjusters to assign or apportion loss payment among insurers with overlapping coverages on the same property (see Guiding Principles). Under general conditions 4 and 5 of the Guiding Principles, wall-to-wall carpeting is considered as part of the building when it is included in the realty mortgage, and as contents when not included in the realty mortgage. These rules apply when the owner of the building is also the owner of the contents and there is overlapping coverage involving items in the nature of real property and items in the nature of personal property.

But the Guiding Principles make this distinction between carpeting included or not included in the realty mortgage only as the basis for assigning primary or excess coverage where both building and contents coverage are found to apply. If the primary coverage is exhausted by payment of other loss, or is insufficient to pay the carpet loss in full, payment by the excess policy is not precluded.

Where carpeting is not clearly included in the mortgage, a simple determinant of carpet as building or personal property is whether the carpet is laid over a finished or unfinished floor. This factor is often, but by no means regularly, taken into consideration by adjusters and has been used in several court decisions.

Where the building owner also owns the carpet and removal of the carpet leaves only a rough or unfinished floor, the carpet is usually considered to be a part of the building. But where the carpet can be removed with little or no damage to either the carpet or the floor and there is a finished floor underneath, the carpet is more likely to be treated as contents. Where the loss involves damage to both the carpet and the finished floor beneath it, this treatment has the advantage for the insured of justifying both payment for the carpet and the cost of refinishing the damaged floor; payment for refinishing the floor is harder to justify if the carpet—rather than the floor beneath—is considered as the finished floor surface.

One must keep in mind, however, that fashion may dictate wall-to-wall carpeting to the homeowner with finished hardwood floors. A policy of insurance should not inject itself capriciously into a matter of personal taste. If a loss occurred, the homeowner insured on an HO 00 03 would naturally expect, depending on the limits of the policy, to be restored to his or her pre-loss condition. Hardwood floors often being a dwelling's selling point, the owner of such floors would reasonably expect them to be replaced whether or not they were covered by wall-to-wall carpeting.

Several courts have considered the question of wall-to-wall carpeting as building or contents with rather consistent results—generally turning on the question of whether removal of the carpet would materially damage the floor beneath it or leave an unfinished floor exposed, in effect leaving the dwelling incomplete.

The Oklahoma supreme court, in Hartford Fire Insurance Co. v. Balch, 350 P.2d 514 (Okla. 1960), considered whether the building insurance with another insurer or Hartford Fire's contents insurance should pay for loss to carpeting. The rug pad was cemented around the edges to keep it from crawling or getting loose and the carpeting was nailed underneath the molding with small cement nails. The court held that this fastening was “not of such permanent nature as to make it [the carpeting] a part of the dwelling.” The opinion also noted that the dwelling was encumbered by a real estate mortgage, but this did not include the carpeting. Consequently, the court held that this loss fell upon the insurer of the contents.

A different view was later espoused by that same state's supreme court concerning the treatment of carpeting as an item of realty or contents. In the case of United Benefit Life Insurance Co. v. Norman Lumber Co., 484 P.2d 527 (Okla. 1971), the carpeting was installed directly over the concrete slab on the ground floor (with long-lasting glue) and over unfinished rough plywood on the second story. The pad would have been destroyed if removed, and the carpet was not excepted from the mortgage. The court found that it was the owner's intent that the carpet should stay affixed to the realty. The court specifically distinguished this situation from the one in Balch, citing the differences in installation between the two cases.

Two cases before Texas courts also illustrate the different considerations used in reaching a decision. In the case of Ruby v. Cambridge Mutual Fire Insurance Co., 358 S.W.2d 943 (Tex. App. 1962), wall-to-wall carpet that was laid over a tiled floor and held in place by means of backboards was found to be contents. The court observed that the carpet could be removed and used elsewhere without material damage to either the floor or the carpet. The court briefly discussed two rules that courts have applied in determining whether an item of property is a fixture and thus covered as part of the building. The first rule asks three questions: “(1) Has there been a real or constructive annexation of the property in question to the realty? (2) Was there a fitness or adaptation of the article to the uses or purposes of the realty with which it is connected? (3) Was it the intention of the party making the annexation that the chattel should become a permanent accession to the freehold?”  Another question asked by courts to determine whether the article is a fixture is whether it can be removed without material injury to the building, and if it can be, it is not generally considered a fixture. Therefore, the court in this case was not impressed by the insured's assertion that they intended the carpet to be a permanent part of the dwelling.

In the case of Fidelity & Guaranty Insurance Underwriters, Inc. v. Gardner, 471 S.W.2d 449 (Tex. App. 1971), a roll of new carpet, stolen from an attached garage where it was being stored overnight to be installed in the dwelling the next day over a “rough and unfinished concrete floor,” was found to be covered as part of the building. The insureds' theft coverage did not cover any property “which at the time of loss is not an integral part of any dwelling…” but the policy's definition of a dwelling specified that a dwelling “shall also include, if not otherwise insured, materials in and adjacent to the dwelling for making alterations, extensions, and repairs thereto.” The court found that the new carpet was “an integral part of the materials in and adjacent to the dwelling for making alterations and repairs to the dwelling, and thus within the protection afforded by the insurance policy.”

But in Cox v. State Farm Fire & Casualty Co., 398 S.W.2d 60 (Ark. 1966), the court found that wall-to-wall carpet, cut to fit a particular room and laid over a finished wood floor that had been patched with rough boards, was nonetheless contents rather than a part of the building. The court stated: “it is agreed that the carpeting could have been removed without any damage to the floors. Such ready removability supports the conclusion that the article is not a fixture… On the other hand, the carpeting was cut to fit this particular house—a circumstance that led the plaintiffs to regard it as so much a part of the dwelling that they would only have sold the house and carpeting as a unit. This determination on their part is clearly not conclusive on the issue. Bookcases, tables, cabinets, and other pieces of stationary furniture are often constructed to fit a particular wall or corner in a particular room. Nevertheless, if they merely stand in place without being permanently attached to the house they are certainly not fixtures as a matter of law, no matter how sincere the owner may be in his determination not to sell the house apart from such custom-built furniture.”

And in Woods v. Federal Insurance Co., 338 So. 2d 1133 (Fla. Dist. Ct. App. 1976), the court made a similar finding concerning carpet laid over an oak parquet floor. It should be clearly noted that in both this case and Cox, above, insurance on contents had been exhausted by payment of other personal property damage. The insureds sought to recoup some of their loss by claiming the carpeting should be considered part of the dwelling, and therefore its loss paid under that coverage. In the Woods case, where the home was substantially destroyed by fire, the court observed that the insureds had paid a premium on the dwelling coverage to protect the floor and the floor was paid for by the insurance company. The court indicated that it would have ruled differently had the floor underneath the carpet been unfinished by stating: “The carpeting was not the original floor covering, and was not installed over a bare concrete slab nor was it included as a part of the construction contract, but instead was a covering which could be removed without substantial damage to the realty and still leave a permanent flooring underneath.”  The insureds “were compensated for a 'floor' but we do not feel they should be compensated for two of them,” said the court.

The same question of coverage as building or contents arises with draperies, curtains, shades, and blinds as with carpeting. While shades and blinds are more regularly considered a part of the building, and are not as often removed by a departing occupant as are curtains or draperies, the same question of legal status—as a fixture of the building or as removable personal property—must be resolved for all of these items.

There is less legal precedent for treatment of these items as building items than there is for carpeting. Curtains and draperies are not physically attached to the dwelling, but are simply hung by hooks or loops on rods that are physically attached. They are less often mentioned in a deed or mortgage as being a part of the realty than carpeting is. However, as with carpeting, the argument could be made for custom fitted draperies that they are useful only for that building, and would be sold with the dwelling rather than removed. But in the case of Farmers Home Mut. Ins. Co. v. Fiscus, 725 P.2d 234  (Nev. 1986), the court awarded the insureds damages for their personal property, which included carpets, draperies, furniture, appliances, clothing, and other personal property. The question of real versus personal property never arose; carpeting and drapes were assumed to be personal property.

The AAIS homeowners forms recognize this and treat curtains and drapes in the same way as carpet. ISO homeowners forms do not mention curtains or drapes, suggesting that ISO intends that they should always be treated as personal property. But if it can be shown that the curtains or drapes are legally a fixture of the dwelling, the ISO homeowners dwelling coverage—at full replacement cost—would apply to them.

Lighting fixtures can raise the question of whether they should be considered contents or building property. A strong argument can be made for their treatment as fixtures, since they leave the building incomplete and unsightly once removed. This viewpoint was illustrated in the case of Equibank v. United States Internal Revenue Service, 749 F.2d 1176 (5th Cir. 1985), which involved the conflicting interests of the IRS versus the lender in a mansion. The IRS seized the building and removed several valuable antique crystal chandeliers. The lender brought suit against the IRS for the return of these fixtures on the grounds that they were “component parts” of the building and were thus subject to the mortgage on the property. Once the chandeliers were removed, the workboxes containing the wiring were exposed, as were the holes made by the fasteners. Finding for the lender, a Louisiana appellate court distinguished between electrical appliances that could be disconnected by pulling a plug out (e.g., lamps, radios, and the like) and electrical installations that cannot be connected or disconnected without certain knowledge of electrical wiring. The court considered the “societal expectations” of reasonable persons concerning the component parts of a building and stated: “The ordinary view of society being a relevant consideration, we conclude our consideration by asking the near-rhetorical question: Does the average, ordinary, prudent person buying a home expect the light fixtures to be there when he or she arrives to take possession? Does that person expect the room to become illuminated when the light switch is thrown or should that person reasonably expect no response to the switch and, upon looking up, reasonably expect to see only a hole in the ceiling with the interior house wiring sticking out of the electrical workbox? In our view, the societal expectation is to have the lights go on.” Another non-insurance case finding that light fixtures are part of the building is the court decision of American Bank & Trust v. Shel-Boze, Inc., 527 So. 2d 1052 (La. Ct. App. 1988).

In the final analysis, perhaps the best summation of the dwelling or contents argument is that used by a Florida court. In United Bonding Ins. Co. v. Minichiello, 221 So. 2d 220 (Fla. App. Ct. 1969), the court asked “Is wall-to-wall carpeting real or personal property?” and answered its own question “It all depends. A careful analysis of the cases will reveal that the question is not what carpet is like, but what the parties intended, considering the demands of justice in the light of the interests to be balanced.”