• Bob Siems

Maryland’s Take On Residency Clauses In Homeowners Policies: Shepard v. Keystone and J.H.R. v. Liber


This office sees insured-side homeowners denials a lot. Essentially, these clients did not realize there was a residency clause in their homeowners insurance. So their residency-status changes (sometimes without their doing anything), they do not update their insurance, and when something happens, they get denied.

Legally, this denial is more complicated than most. Standard homeowners policies do not have a residency exclusion. The denial comes from a “where you reside” clause in the definitions section of the standard ISO homeowners policy. It defines the “residence premises” (i.e. the home being insured) as (simplifying things here) the place where the insured “resides”. If you do not “reside” in the insured home, the insurer does not pay.

Not surprisingly, litigation often ensues. “Where you reside” is impressively ambiguous for a simple term. Depending on which state you are in, “where you reside” can mean “where you reside” (i.e. the place where you presently live), “where you are domiciled” (i.e. your one true home to which you intend to return, regardless of where you presently reside), or “that you resided (or maybe were domiciled) at the house at the time of the start of the insurance contract.” And that assumes your state already decided the question.

Maryland does not have binding precedent on what the “where you reside” language in standard homeowners’ policies means. There is one federal case, Shepard v. Keystone Ins., 743 F. Supp. 429 (D.Md. 1990) (applying Maryland law). It’s persuasive authority because it’s only a Federal District Court case, not a Maryland state court case. The MIA also recently issued a §27-1001 opinion that discussed a residency case, J.H.R. v. Liberty Mutual (MIA 27-1001-15-00022.) The sum of the opinions is that Maryland holds “reside” requires at least regular residency. (It remains unclear if “where you reside” under Maryland law also includes permanent domicile where the insured did not actually spend any time at the dwelling.)

Shepard involved homeowners coverage on a property in Joppa, Maryland, insured by Keystone Insurance. The home had originally belonged to the insured’s Mom. Mom transfers it to the insured in 1985 so that the insured could pay the mortgage. The insured had not lived there since 1980. Mom leaves the home, leaving the house vacant, in 1986. The house burns down in 1987. Keystone Insurance denies coverage under the “where you reside” policy language.

The Shepard Court’s ruling allowed Keystone to deny coverage, but adopted a very broad meaning of “where you reside”. It interpreted “where you reside” and “residence” to refer to “a place that is occupied by the insured as a dwelling place or home, at least on a temporary basis.” It specifically considered and rejected the domicile based interpretation drawn from how the Court of Appeals interpreted “reside” in context of election law and other domicile-status-based areas.

The Maryland Insurance Administration has embraced that reading of Shepard . In J.H.R. v. Liberty Mutual, a 27-1001 opinion from the MIA, the MIA held that a standard “where you reside” clause did not require that the home be the insured’s principal residence. (I blog about those a lot. They are persuasive authority.) An insured had a house in Maryland that burned down. Liberty Mutual denied for residency and insurance fraud. The MIA found that this was not the insured’s primary residence (i.e. his legal domicile). His primary residence was in Florida. The MIA first considered the residency clause denial. It concluded, citing Shephard and the actual policy language itself, that any alleged misrepresentations about residency were immaterial because the policy did not require that the house be the principal residence of the insured.” See J.H.R. v. Liberty Mutual, 27-1001-15-00022 (2015), p. 10. (The MIA then resolved the case by finding insurance fraud in regards to ALE and denying the claim entirely.) In short, under Maryland law, “where you reside” did not require that the insured home be an insured’s primary home or domicile.

Maryland’s law could still use some added developments. I have not found a case where the insured wants coverage based on domicile status. There are a lot of fact patterns where that exists. E.G. Insured is away in the army. Insured is in the hospital for a long time. Insured is travelling for a long time. Insured needs to temporarily live elsewhere to take care of elderly relatives. The law in those cases in light of Shepard and J.H.R. is unclear. If the insured needs to occupy the home on at least a temporary basis, as required by Shepherd, that implies the answer is no.

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