Policy endings, empty buildings and coverage territory

Introduction

A property policy protects a person only for a certain period of time, under certain conditions, and in certain places. This lesson covers three questions you will often ask when you read a policy or a loss scenario:

• When did the coverage end, and how? Was it cut short partway through, or did it simply not continue into a new period?
• Was the building empty in a way the policy cares about? "Empty" can mean different things.
• Was the property or event in a place the coverage reaches?

Each question is separate. A policy can be in force and the loss can be inside the coverage territory, yet one condition can still limit one coverage.

By the end of this lesson, you will be able to:

• Tell a cancellation apart from a nonrenewal using the policy dates and the notice dates.
• Recognize a nonrenewal and explain why it is not a termination partway through the policy period.
• Tell vacancy apart from unoccupancy, and apply a stated vacancy condition to a set of facts.
• Decide whether a location falls within a stated coverage territory, and explain why that test alone does not prove a loss is covered.

Before you start: You should already know how a policy is put together and where to find the Declarations and Conditions, which is covered in Contract formation and the policy map. It also helps to have read After a loss: notice, protection, proof and insurer response.

Policy period: the dates the coverage runs

The policy period, also called the term, is the stretch of time the policy covers. The Declarations is the summary page that lists names, address, limits and dates. It shows when the term starts, called the effective date, and when it is scheduled to end, called the expiration date.

For example, a fictional homeowners policy runs from August 1, 2027 to August 1, 2028. Partway through, on January 10, 2028, the policy is midterm. On August 1, 2028, it reaches its expiration date.

A policy can stop protecting someone in two different ways:

• It can be ended early, before August 1, 2028.
• It can reach August 1, 2028 and not continue into a new term.

The next two sections name these two endings.

Cancellation: ending the policy before its scheduled end

Cancellation means the policy is ended before its expiration date. The coverage stops partway through the term.

In the sample HO-3 homeowners form used in this lesson, both sides can cancel:

• The insured can cancel. The insured is the person the policy protects. They can cancel at any time by returning the policy or by telling the insurer in writing the date the cancellation should take effect.
• The insurer can cancel only for the reasons the form lists. It must tell the insured in writing the date the cancellation takes effect. The form allows the notice to be delivered or mailed to the address in the Declarations, and it treats proof of mailing as enough proof of notice.

Two different dates

A cancellation notice involves two separate dates:

• The notice date is when the notice is delivered or mailed.
• The effective date of the cancellation is when coverage actually stops.

Receiving a notice does not end coverage on that day. Coverage continues until the effective date stated in the notice.

Worked example. The fictional policy runs from August 1, 2027 to August 1, 2028. On February 3, 2028, the insurer mails a written notice saying the policy is canceled effective March 15, 2028.

1. Compare the effective date with the expiration date. March 15, 2028 comes before August 1, 2028, so the policy ends early. That makes it a cancellation.
2. Find when coverage stops. Coverage stops on March 15, the effective date, not on February 3, when the notice was mailed.
3. Picture a pipe that bursts on February 20. It happens after the notice was mailed but before the effective date. The policy is still in force on that day. Any claim is still decided by the policy's other terms.

The tempting mistake is to treat the notice date as the end date. The notice announces a future ending. The effective date is the ending.

Nonrenewal: declining to start a new term

Nonrenewal means the policy runs to its expiration date and no new term begins. Nothing is cut short. Coverage simply does not continue past the scheduled end.

Either side can decide not to renew. The insured may choose not to continue. The insurer may also decline to renew, and the reason is not always about the insured. An insurer may stop writing that type of insurance, or write fewer policies in an area.

The sample HO-3 form allows the insurer to nonrenew by delivering or mailing written notice before the policy's expiration date. As with cancellation, the notice date and the date coverage stops are different. Coverage continues to the expiration date.

Cancellation and nonrenewal side by side

Both terms describe a policy ending, so they are easy to mix up. Each one answers a different question:

• Cancellation asks: Is the policy being ended before its expiration date?
• Nonrenewal asks: Is the policy being allowed to reach its expiration date without a new term?

The fact that separates them is the date coverage stops. If that date is earlier than the expiration date, it is a cancellation. If that date is the expiration date and no new term follows, it is a nonrenewal.

Checking a notice period with a stated policy rule

Notice periods are set by the policy's wording and by state law. They are not one universal number. The sample HO-3 form states its own periods. It also says that if its terms conflict with state law, the policy is treated as following state law. Nevada's own requirements are taught in Nevada cancellation, nonrenewal and temporary binders.

The arithmetic below uses a fictional rule chosen for practice, not a Nevada requirement.

Fictional rule: The insurer must mail a nonrenewal notice at least 30 days before the expiration date.

Facts: The policy expires August 1, 2028. The insurer mails a nonrenewal notice on June 20, 2028.

To count the days from the notice date to the expiration date:

• June 20 to June 30 is 10 days.
• All of July adds 31 days.
• July 31 to August 1 adds 1 day.
• The total is 42 days.

Since 42 is at least 30, the notice meets the fictional rule. Coverage continues through August 1, 2028, and then no new term begins.

Change one fact. Suppose the notice is mailed on July 10 instead. From July 10 to July 31 is 21 days, and adding 1 day reaches August 1, for 22 days in total. That is less than 30, so the notice does not meet the fictional rule. The type of ending has not changed: it is still a nonrenewal, because the date coverage stops is still the expiration date. Only the notice timing changed.

Check 1. A fictional policy runs from May 1, 2027 to May 1, 2028. On September 2, 2027, the insured sells the house and writes to the insurer asking to end coverage on September 30, 2027. Is this a cancellation or a nonrenewal, and on what date does coverage stop?

Check 2. The same policy is never canceled. On March 10, 2028, the insurer mails a notice saying it will not offer a new term after May 1, 2028, because it is reducing the number of homeowners policies it writes in that area. A loss happens on April 15, 2028. Was the policy still in force on April 15?

Vacancy and unoccupancy: two kinds of "empty"

Unoccupancy means no one is living in the building right now, but it is still set up for someone to live there. The furniture and personal belongings remain, the utilities work, and the owner intends to return.

Vacancy means the building is empty of people and of the belongings needed to live there. In general insurance usage, a vacant house is one with its furnishings moved out, such as a house that has been cleared and listed for sale or rent.

Here is one connected example:

• A fictional owner in Reno goes on a long trip. The furniture stays, the power and water stay on, and the owner plans to come back. The house is unoccupied.
• The owner then sells the house, moves all the furniture to a new home and leaves the old house empty for sale. The old house is now vacant.

What changed was not only whether a person was there. It was whether the house was still furnished and set up for living. That is why vacancy describes a more fully empty building than unoccupancy.

There is an important qualification. These are general meanings, and the exact definitions vary. A policy may define vacancy or unoccupancy itself, sometimes using a time period or a requirement that no personal property be present. Courts have also not described vacancy consistently. When you apply a condition, read the word the condition actually uses, and use any definition the policy supplies.

Applying a vacancy condition: the HO-3 glass example

An additional coverage is an extra, specific coverage listed in the policy beyond the main property coverages. The sample HO-3 form includes an additional coverage for breakage of glass or safety glazing material that is part of a covered building, storm door or storm window.

That glass coverage has a condition, which is a requirement that changes whether it applies. Restated in plain English:

• The limitation: The glass coverage does not include loss on the residence premises (the insured location shown in the Declarations) if the dwelling has been vacant for more than 60 consecutive days immediately before the loss.
• Exception 1: The limitation does not apply when the breakage results directly from earth movement.
• Exception 2: A dwelling being constructed is not considered vacant.

To apply this condition, ask these questions in order:

1. Does the condition's own word fit the facts? The word here is vacant, not unoccupied.
2. How many days in a row was the dwelling vacant, ending right before the loss?
3. Is the count more than 60? Exactly 60 is not more than 60. Day 61 is the first day that crosses the line.
4. Does an exception apply? Check for earth movement and for construction.

Worked example. A fictional house in Henderson was emptied of all furniture and listed for sale. It had been vacant for 61 consecutive days when a ball broke a window.

• The house is vacant, not just unoccupied.
• 61 is more than 60.
• The cause is a ball, so there is no earth movement, and the house is not under construction.

The limitation applies, and the glass additional coverage does not include this loss.

Change one fact at a time:

• The count is 60 days. Sixty is not more than 60, so this limitation does not remove the glass coverage. The loss is still subject to the policy's other terms.
• The house has been vacant for 90 days, and an earthquake breaks the window. The earth-movement exception applies, so the vacancy limitation does not remove the glass coverage for this breakage.
• The house is being built and has no one living in it yet. The form says a dwelling being constructed is not considered vacant, so the limitation is not triggered.
• The owner is away for 90 days, but the house is furnished and the utilities are on. Under the general meanings above, the house is unoccupied, not vacant. This condition uses the word vacant, so these facts alone do not trigger it. Check whether the policy defines the terms differently.

Two tempting mistakes come up here:

• Treating the limitation as the end of the policy. This condition limits one additional coverage. It does not cancel the policy.
• Treating "unoccupied" and "vacant" as the same word. They describe different facts, and this condition names only one of them.

Check 3. A fictional house was cleared out between tenants. It had been vacant for 45 consecutive days when a storm window broke. Under the HO-3 glass condition, does the vacancy limitation apply?

Coverage territory: where the coverage applies

Coverage territory is the area where property must be located, or where an event must happen, for a particular coverage to apply.

The key word is particular. Each coverage part can have its own location test.

The sample HO-3 form shows this clearly:

• Coverage A (the dwelling) covers the dwelling on the residence premises shown in the Declarations. A different house the insured owns somewhere else is not that dwelling.
• Coverage C (personal property) covers personal property owned or used by an insured while it is anywhere in the world. A laptop damaged in a hotel abroad meets Coverage C's location test.

Inside the territory does not mean fully covered. Meeting the location test answers only the "where" question. The covered causes of loss, the exclusions and the limits all still apply.

Coverage C shows this in one specific way. For personal property that is usually located at an insured's other residence, meaning a residence other than the residence premises, the limit is 10% of the Coverage C limit or $1,000, whichever is greater. The form lists exceptions, such as property moved out because the residence premises is being repaired and is not fit to live in.

Worked example. The Coverage C limit is $60,000, and furniture usually kept at the insured's second home is damaged. 10% of $60,000 is $6,000. That is greater than $1,000, so the limit for that property is $6,000.

Change one fact. If the Coverage C limit is $8,000 instead, 10% is $800. Since $1,000 is greater than $800, the limit is $1,000.

A stated territory in a different policy

The next example uses a fictional equipment policy whose coverage territory is stated as the United States and Canada.

• A camera on that policy is damaged in Vancouver, Canada. Vancouver is inside the stated territory, so the location test is met. The loss must still satisfy the policy's other terms.
• The same camera is damaged in Paris, France. France is not listed, so the location test fails, and this coverage does not apply to that loss.

Check 4. An insured on the sample HO-3 form owns a jacket and a second home. The jacket is stolen from a ski lodge in Switzerland while the insured is traveling. Separately, the roof of the insured's second home, which is not the residence premises, is damaged. For each item, does the coverage's location test point toward Coverage C, Coverage A, or neither?

Practice on your own

Work through each case before opening the answer.

Practice 1. A fictional policy runs from October 1, 2027 to October 1, 2028. On November 5, 2027, the insurer mails a notice that the policy is canceled effective December 12, 2027. A fire occurs on November 30, 2027. What type of ending is this, and was the policy in force on November 30?

Practice 2. Use this fictional rule, chosen for practice only: the insurer must mail a nonrenewal notice at least 45 days before the expiration date. The policy expires December 1, 2028, and the insurer mails a nonrenewal notice on October 20, 2028. Does the notice meet the fictional rule? Is this a nonrenewal or a cancellation?

Practice 3. An insured spends 75 days in a rehabilitation facility. The house stays furnished, the utilities remain on, and they plan to return. A neighbor's tree branch breaks a window. Using the general meanings in this lesson and the HO-3 glass condition, does the vacancy limitation apply?

Practice 4. A fictional rental house was emptied of all furniture and had been vacant for 70 consecutive days. A small earthquake cracks a window, and on the same day a vandal breaks a different window. For each window, does the HO-3 glass vacancy limitation apply? Consider only the glass additional coverage.

Practice 5. A fictional bicycle policy states its coverage territory as "the United States only." The bicycle is stolen in Tijuana, Mexico. A month later, a replacement bicycle is damaged in Las Vegas. Does each location meet the stated territory? Does meeting it prove the Las Vegas loss is covered?

What to remember

• Cancellation ends a policy before its expiration date. Nonrenewal lets it reach the expiration date without a new term. Compare the date coverage stops with the expiration date to tell them apart.
• A notice is not the ending. Coverage continues until the effective date in a cancellation notice, or until the expiration date in a nonrenewal.
• Notice periods come from the policy wording and from state law. They are not universal. For Nevada's requirements, see Nevada cancellation, nonrenewal and temporary binders.
• Unoccupied means no one is living there, but the building is still furnished and set up for living. Vacant means it is empty of people and of the belongings needed to live there. Exact definitions vary, so use the policy's own wording.
• To apply a vacancy condition, check the word it uses, count the consecutive days ending right before the loss, test "more than," and check every exception. The HO-3 glass condition limits one additional coverage. It does not cancel the policy.
• Coverage territory is checked one coverage part at a time. Meeting the location test answers "where." It does not answer "covered."