Does an HO-3 Cover Family Members Living Separately in a Duplex?

A named insured owns a duplex, where she lives in one unit and her son and his wife live in the other unit rent-free.

Q: Do the son and daughter-in-law have coverage for their contents and liability under the mom's HO-3 policy, or do they need to purchase their own renters insurance?

Response 1: If there are two separate units and two separate households, the son and his wife need their own renters policy.

Response 2: Depending on how the residences are listed with the county, they are likely two separate residences. Therefore, the son and his wife are not residents of the same household as the mom, which means they need their own renters insurance.

Response 3: “Resident relatives” are insureds if they reside in the same household with the named insured. Since it's a separate unit, it is likely the mom maintains a separate household from her son and his wife, which means they need a renters policy.

Response 4: Without looking at any outside-the-box forms or endorsements, most carriers wouldn’t cover the son and his wife on the HO-3. It's a two-family home, meaning each unit is a separate residence with a separate method of entrance and a separate cooking area. Based on that logic, the children living in the separate unit would not be covered under the mom's HO-3 form.

The 1991 ISO form defines an insured as “residents of your household” who are on the “residence premises," which is defined as: 

a. The one family dwelling, other structures, and grounds; or

b. That part of any other building; where you reside and which is shown as the "residence premises" in the Declarations.

Still, it might be worth emailing the carrier. You never know—you may get lucky!

Response 5: I don't see any coverage here:

COVERAGE C – Personal Property 

We cover personal property owned or used by an "insured" while it is anywhere in the world. At your request, we will cover personal property owned by:

 1. Others while the property is on the part of the "residence premises" occupied by an "insured";

 2. A guest or a "residence employee," while the property is in any residence occupied by an "insured."

That said, in the 1989 case Denn v. Vanguard Insurance Company, the court sided with the insured when a carrier denied coverage after a fire. An insured resided in one side of a duplex and his sister and her two daughters resided in the other. The sister paid him rent, but they generally shared meals, household expenses and his telephone. The insured's insurance company initially denied coverage for fire damage to his sister's contents and her additional living expenses, but the court ruled that a household existed, even though the parties otherwise lived independently in the same structure.

Admonishing the insurer for denying the claim, the court stated, "the defense advanced in this case is the kind of defense that makes policyholders justifiably mad…One would think that if there are any responsible officials left in the insurance industry (as they self-style their business), they would seek to correct this type of activity by their claims departments before it is too late."

Response 6: They should buy their own renters and insurance. As a husband and wife, they are a separate legal entity with their own exposures and needs. They live in their own apartment, so for all practical purposes, they are renters. It doesn’t matter if they’re living there for free.

Response 7: From a coverage standpoint, this could be argued either way. Ask the underwriter.

Response 8: Relying on an iffy resident status is a bad move. Residency is often determined in a courtroom. Check out this article from the Big “I” Virtual University for more details: “Who is a ‘Resident’ Under a Personal Lines Policy?” The very fact that we’re not sure is a perfect reason to recommend the HO-4. Without knowing all the specifics, no one can say. If the son and his wife have their own life and support themselves, it's farfetched to consider them as a joint resident. 

The cost of policies vary based on individual specifics but the HO-4 is typically very inexpensive. Errors & omissions defense attorneys will tell you that the lower the cost of the correct coverage, the worse it looks for the agent. The kids are saving a lot of money living for free next to Mom. Encourage them to use a very small amount of that for an HO-4. 

Response 9: The ISO HO form defines an insured as "you and residents of your household who are your relatives." I don't know how the courts in your state have defined “household” and whether that definition includes relatives living in the second unit of a duplex, but that concept would be key—these family members are sharing the same “house,” but not necessarily the same “household.” 

A court might rely on details such as tax returns to determine whether the mother and the son maintain separate households. To be safe, the son and daughter-in-law should get an HO-4.

This question was originally submitted by an agent through the VU’s Ask an Expert Service. Answers to other coverage questions are available on the VU website. If you need help accessing the website, request login information.