From left: Timothy A. Carroll and Anthony L. Miscioscia of White and Williams.

Commercial enterprises are not the only insurance policyholders facing obstacles to accessing coverage for COVID-19-related financial losses. Many individuals, too, face an uphill battle for coverage under their homeowners policies, as recent appeals court decisions demonstrate.

"Legal Sea Foods isn't taking no for an answer," began a May 4 Boston Globe article, reporting on the restaurant chain's lawsuit against its commercial property insurance company, which allegedly denied the chain's claim for business-interruption losses on account of a COVID-19-related closure order. Legal Sea Foods is not alone in that endeavor. As recently reported, including by this publication, numerous restaurants, bars and other businesses are taking their business-interruption coverage claims to court.

Commentary about whether and how, if at all, those companies can access business-interruption insurance coverage abounds. Far less reporting and commentary exists for the numerous claims being lodged by homeowners who, like the restaurants and bars they may have frequented before the pandemic, also have incurred COVID-19-related losses. The claims often take the form of lost rental income as a result of a civil authority's order prohibiting a premises from being leased or rented. The claimants generally seek coverage under the "loss of use" part of their policies, which provide some limited coverage for additional living expenses, fair rental value and losses related to civil authority orders.

Requirements for proving entitlement to such coverage include showing either that a covered peril has made the "residence premises" not fit to live in, or that a civil authority prohibits the policyholder from using the "residence premises" as a result of damage to neighboring property. Typically defined in policies as the unit or dwelling "where you reside and shown as the 'residence premises' in the declarations," the term "residence premises" has been, and continues to be, a commonly litigated issue in this space. In addition to the already substantial body of decisional law on the residence premises issue, recent U.S. Court of Appeals decisions create a significant obstacle for some individuals seeking homeowners coverage for COVID-19-related losses.

In Kennett v. USAA General Indemnity, 2020 U.S. App. LEXIS 12876 (5th Cir. Apr. 21, 2020), for example, the U.S. Court of Appeals for the Fifth Circuit affirmed a trial court's judgment, following a jury trial, that a homeowner was not entitled to coverage for loss of his property caused by a March 2016 fire. The homeowner's policy defined residence premises as, among other things, "the one family dwelling" and "that part of any other building … where you reside and which is shown as the residence premises in the declarations." The insurer denied coverage on several grounds, including that "the house was not his 'residence premises' at the time of the fire."

The homeowner in Kennett sued his insurer for coverage, and the case went to trial. The jury returned a verdict for the insurer, finding that the house was not the homeowner's "residence premises" at the time of the fire. The insured filed motions for judgment despite the verdict and for a new trial, which the trial court denied on several grounds, including that "there was sufficient evidence to support the jury's finding that the house was not the homeowner's residence premises at the time of the fire," and that "the verdict was not against the great weight of the evidence." The homeowner appealed, and the Fifth Circuit affirmed the trial court's ruling, rejecting the homeowner's argument that "no reasonable jury could have found that the house was not his residence premises at the time of the fire."

The Fifth Circuit examined the testimony at trial about who, if anyone, was residing at the house at the time of the fire. The homeowner testified that he was incarcerated from October 2015 to February 2016 (one month before the house fire), and that, from the time he was released from custody to the time of the fire, the house's water service was never turned on. He also testified that "there was no 'set date' for him to return to the house" after release from prison. Others testified, too, about the house. The homeowner's property manager, for example, testified that "he was '100% certain' that no one lived at the house .,, from September 2015 and the time of the fire" (March 2016). The insurer's cause-and-origin expert, meanwhile, testified that he didn't believe anyone was living at the house "because the contents of the premises showed no signs of residency." "Viewing this evidence in the light most favorable to the verdict," the Fifth Circuit concluded, "it was reasonable for the jury to find that the insured was not residing at the house at the time of the fire, and consequentially, that the house was not the insured's residence premises.''

The homeowner made two arguments for coverage, both of which the Fifth Circuit rejected. First, the homeowner argued that because the policy's declarations page listed the house as the "residence premises," the jury was required to find that it was his "residence premises" at the time of the fire. The Fifth Circuit rejected the argument because it conflicted with the "plain language" of the homeowner's policy, "which defined residence premises as 'where you reside and which is shown as the 'residence premises' in the declarations." So, even though the declarations page listed the damaged house as the "residence premises," the homeowner still needed to reside there at the time of the fire to access coverage.

The homeowner's second argument focused on the meaning of "residency," which he argued "is a matter of intention and choice rather than one of location." Under that theory, the homeowner need only have intended to reside at the premises to satisfy the definition of "residence premises." The Fifth Circuit rejected that argument, too. After examining the meaning of "residency" under Louisiana law, the Fifth Circuit concluded that the trial court did not err in instructing the jury that "the word reside means to dwell permanently or for a considerable time, to have one's settled or usual home in or at a particular place." The homeowner did not dispute that jury instruction at trial, the court noted. Based on that instruction and the evidence summarized above, the Fifth Circuit concluded that "it was reasonable for the jury to conclude that the house was not the insured's 'residence,' and therefore residence premises, at the time of the fire."

The Fifth Circuit in Kennett is not the only U.S. Court of Appeals recently to have examined the meaning of "residence," as used in a personal lines insurance policy. On the very same day that Kennett was decided, the Third Circuit, in First Liberty Insurance v. McGeehan, 2020 U.S. App. LEXIS 12724 (3d Cir. Apr. 21, 2020), also examined the term albeit in different factual circumstances.

In McGeehan, two individuals sought coverage under an auto policy for injuries sustained in an auto accident. The auto insurer denied coverage, stating that coverage was only for a "family member," defined in the policy as "a person related to you by blood, marriage or adoption who is a resident of your household," and the individuals did not qualify as such because they did not reside with the policyholders. Ultimately the Third Circuit agreed, after examining the meaning of "residency," which the court observed "requires 'at the minimum, some measure of permanency or habitual repetition." The record in McGeehan did not support a finding of residency, the Third Circuit concluded, in part because the individuals "past residency at the home, intended future visits, maintenance of many belongings, and receipt of mail do not establish residency," nor do "periodic visits or other ties to the … area" where the home was located.

The decisions in Kennett and McGeehan on the issue of residence premises add to the already existing and substantial body of decisional law on the issue. See, e.g., Arguelles v. Citizens Property Insurance, 278 So. 3d 108, 112 (Fla. Dist. Ct. App. July 3, 2019) (holding that, "because the uncontroverted facts adduced at the summary judgment hearing confirmed that at the time of the loss, the insured was living in his established abode in New York, and his Miami condominium was solely occupied by his two tenants, he was not entitled to coverage under either definition" of residence premises); Song Yu v. Farm Bureau General Insurance, 2019 Mich. App. LEXIS 2357, at *6-7 (Mich. Ct. App. May 21, 2019) (granting insurer summary judgment on basis that insureds did not prove that they resided in the damaged premises, even though they visited the property "once or month or so," because the premises was not their " 'home base' or location to which they 'regularly returned'").

Those and other decisions create a significant obstacle for those seeking, or intending to seek, coverage under a residence premises-based homeowners policy for COVID-19-related losses. Before individuals can access coverage for such losses, they will need to prove that they actually were residing at the premises at the time of the alleged loss. As Kennett and McGeehan demonstrate, that is no small task, especially for those who own and exclusively lease or rent a second or third home, often in a different state in which they themselves reside. Failing to satisfy the policy's threshold residency requirement will preclude coverage regardless of whether policyholders can prove the other, perhaps more burdensome, requirements in the loss of use part of a homeowners policy—e.g., that the residence premises is not fit to live in, or that a civil authority has prohibited the use of the residence premises as a result of damage to neighboring property. And, even if policyholders can satisfy the residence premises requirement, they may face yet another obstacle in proving that the loss was caused by a peril insured against.

Despite these significant obstacles to coverage, some homeowners, like Legal Sea Foods, may not take "no for an answer."

Anthony L. Miscioscia, a partner at White and Williams, serves as co-chair of the insurance coverage and bad faith group and bad faith extra-contractual liability group. He represents major property and casualty insurers and smaller regional insurance companies on a national and regional basis.

Timothy A. Carroll is an associate with the firm. He represents major insurance companies in complex insurance coverage disputes in state and federal courts.