Dec. 1, 2011 – A newly purchased home that was under renovation when destroyed by explosion and subsequent fire is fully covered by insurance, although the homeowners had never spent the night there, a state appeals court recently ruled.
In January 2007, Bernard and Kathryn Johnson bought a house in Neshkoro, just west of Oshkosh, and planned to eventually retire there. They began substantial renovations to make it habitable for their taste, and were frequently on the property but never stayed overnight.
Unfortunately, the house exploded in September 2007. The Johnsons maintained homeowners insurance on the house with Mt. Morris Mutual Insurance Company (Mt. Morris).
Mt. Morris declined to pay the policy limits of $128,000 for the dwelling, other structures, and personal property. Instead, Mt. Morris agreed to pay $35,937 for the actual value of the dwelling, debris removal, and unscheduled personal property.
The Johnsons sued Mt. Morris for policy limits under Wis. Stat. section 632.05(2), which requires an insurer to pay policy limits whenever “any policy insures real property that is owned and occupied by the insured primarily as a dwelling and the property is wholly destroyed.”
At issue on appeal was whether the Johnson’s “occupied” the insured house, and whether the house was considered a “dwelling” for purposes of full coverage under section 632.05(2).
Mt. Morris argued that the Johnsons had not occupied the property primarily as a dwelling, as the statute requires, because they didn’t live there and it wasn’t used as a residence. But in Johnson v. Mt. Morris Mutual Ins. Co., 2010AP2468 (Dec. 1, 2011), the District IV Wisconsin Court of Appeals ruled the Johnsons were entitled to full coverage under the statute.
The Johnsons home was considered a “dwelling” and they “occupied” it, as those terms are used, the appeals court concluded. First, it ruled on whether the home was a dwelling.
“It would be unreasonable to say that a dwelling ceases to be a dwelling while its owners are improving it for the very purpose of using it as a dwelling,” wrote appeals court Judge Gary Sherman, noting the house had a kitchen, bathroom, and bedrooms.
The more interesting question, according to the appeals court, was whether the Johnsons “occupied” the dwelling as the term is used in section 632.05(2).
“[T]he ‘occupied’ requirement can be met by use of the dwelling by an insured even if that use is not actually living in the dwelling at the time of the occurrence,” Judge Sherman wrote.
However, the appeals court noted that section 632.05(2) requires use “as a dwelling,” and not for other purposes. “[T]he insured’s use must bear a relationship to actually living in the dwelling. That relationship exists here,” the appeals court concluded.