This diversity suit for breach of an insurance contract was dismissed on summary judgment. The suit is governed, so far as the substantive issues are concerned, by Indiana law, and the plaintiffs appeal presents issues of both contract interpretation and Indiana insurance law.
Mrs. Luster was a widow living alone in her house in Merrillville, Indiana. She had a homeowner’s insurance policy from Allstate. In October 2001, when she was 83, she was injured in a fall and after being rеleased from the hospital moved into an extended-care facility. She executed a power of attorney to her lawyer, Rick Gikas, who is the representative of her estate in this litigation. She never returned home, and died in April 2006, some four and a half years after her fall. Gikas had notified Allstate of his power of attorney and had directed the company to bill the insurance premiums to his law office. No one lived in the house after she left it.
Three months after her death — her house still unoccupied — a fire caused extensive damage. Gikas submitted a claim on behalf of the estate. An investigation indicated that the fire may well have been started by burglars, but the plaintiff denies this and the district judge made no finding.
In the course of the investigation Allstate discovered that the house had been unoccupied for four and a half years before Mrs. Luster’s dеath, and denied the claim, precipitating this suit. Allstate continued billing Gikas for premiums, however, and he continued paying them until October 2008, more than two years after the fire, when Allstate — which claims not to have known that the policy was still in force until its lawyers read the estate’s sum *906 mary-judgment brief that month — purported to cancel the policy retroactively to November 2001, and returned the premiums for the subsequent period to the еstate.
The appeal requires us to consider four provisions of the insurance policy:
1. The insured “must ... inform [Allstate] of any change in title, use or occupancy of the residence premises.”
2. “If [the insured] diets], coverage will continue until the end of the premium period for ... [the insured’s] legal representative while acting as such.”
3. There is no coverage for loss to property “consisting of or caused by ... any substantial сhange or increase in hazard, if changed or increased by any means within the control or knowledge of an insured person.”
4. There is no coverage for loss to property “consisting of or caused by ... vandalism or malicious mischief if [the insured’s] dwelling is vacant or unoccupied for more than 30 consecutive days immediately prior to the vandalism or malicious mischief,” unless the dwelling is under construction.
1. Gikas didn’t notify Allstate until after the fire that the house was unoccupied. He argues that the notice he gave Allstate, shortly after Mrs. Luster left the house for good — that he had a power of attorney and premiums should be billed to his office — gave the insurance company constructive notice that the house was unoccupied, or at least obligated the company to inquire about its occupancy. That is a frivolous argument. Allstate knew that Luster was 83, so it would come as no surprise to learn that she had executed a power of attorney and that the holder of the power would be handling her finances. That did not indicate that she’d moved out of the house.
Alternatively, Gikas argues that anyway the house was
not
unoccupied, because right up until her death Luster expressed the intention of returning to live there when her health permitted. “Occupancy” in Indiana law (as in insurance law generally) implies “the presence of human beings as at their customary place of abode, not absolutely and uninterruptedly continuous, but that must be the place of usual return and habitual stoppage,”
Home Ins. Co. v. Boyd,
But though there is no “require[ment] that some person must be living in [the house] every moment, ... there must not be a cessation of occupancy for any considerable period of time.”
Insurance Co. v. Coombs,
Regardless of the owner’s intentions, a house that stands unoccupied for four and a half years can hardly be described as “occupied” throughout that period, particularly when one considers the risk of theft, vandalism, fire, water damage, and so forth when a house is left empty for years on end. Wе need not try to pinpoint the date on which, regardless of the owner’s intentions, a house has to be considered to have undergone a “change in ... occupancy” within the meaning of the policy, triggering the duty of the insured (or, in this case, her representative) to notify the insurance company. Four and a half years of continuous absence of human occupation constitutes a change in occupancy.
The duty-to-notify provision entitled Allstate to cancel the policy in the event the house became unoccupied. Yet while arguing compellingly that Gikas had a duty to notify it that the house was unoccupied, Allstate is seeking to avoid coverage only on the basis of the third and fourth provisions above. The district judge, who found that the duty of notification had indeed been breached, attached no consequences tо that breach but instead based his decision on the third provision. (We’ll see later that the issue of cancellation is raised mainly by the plaintiff, as presenting an alternative ground for recovery.)
Although the policy expressly authorizes the insurer to cancel it for a violation of any of its terms, it also requires the insurer to give 30 days’ notice of intention to cancel, and Allstate failed to do that after discovering in the wake оf the fire that the house had been unoccupied for years. The requirement of notice of intent to cancel is important; it gives the insured an opportunity to prevent a lapse of coverage, by taking steps to reinstate the policy or obtain a substitute policy from another insurer.
Conrad v. Universal Fire & Casualty Ins. Co.,
It might be argued that the duty to notify the insurer оf a change in occupancy is a condition the breach of which cancels the entire policy. But the remedy of cancellation (“rescission” is the technical legal term) must be sought by the wronged party, and Allstate did not seek to cancel the policy when it learned of the change in occupancy. The insured’s actions cannot by themselves void the contract.
Prudential Ins. Co. v. Smith,
It is not even clear that a change in occupancy is the kind of breach of contract that would entitle Allstate to rescind the policy. The Indiana cases limit rescission to breaches that go “to the heart of the contract,”
Collins v. McKinney,
2. The plaintiff argues that even if coverage lapsed, the death clause reinstated it, because Luster died before the fire. The argument misunderstands the purpose of the clause. It is to prevent a lapse of coverage when the insured dies. If coverage had lapsed earlier, the clause has no significance.
3. The district judge ruled that leaving the house unoccupied constituted a “substantial change or increase in hazard” within the meaning of clause 3 (no coverage for loss to property “consisting of or caused by ... any substantial change or increase in hazard, if changed or increased by any means within the control or knowledge of an insured person”). Thе judge seems to have thought that to leave a house unoccupied for however short a time causes an “increase in hazard” as a matter of law. Allstate takes the more moderate position that any gap in occupation of more than 30 days increases hazard as a matter of law.
Neither position is correct. Houses are rarely occupied continuously. A homeowner might take a 31-day trip; Allstate implies that if a fire occurred during that period the insured would be uncovered. That is not the law. (In addition to the cases we cited earlier, see
Hill v. Ohio Ins. Co.,
Allstate’s argument thus implies that if you have a second home the homeowner’s policy on your primary residence is illusory; you’re away a lot and so coverage lapses. That’s nonsense. And even if the house is unoccupied in the relevant sense — the sense that triggers the duty to notify the insurance company of a change in occupancy — it doesn’t follow that you have created a “substantial ... increase in hazard.” Maybe you fitted the house with an array of locks and alarms and hired a security company to check on the house daily and so made the house more secure than when you were living there — an especially plausible inference if you happen to be an elderly person who might if in residence damage it inadvertently by leaving appliances on or failing to remove combustibles like cans containing paint or oil-soaked rags or to attend to defects in the electrical wiring of the house. There is no rule that moving out of a house per se increases the hazards against which the insurance company has insured you.
Smith v. Peninsular Ins. Co.,
The court in
Kinneer v. Southwestern Mutual Fire Ass’n,
4. There may well have been vandalism, by burglars, and if so it occurred more than 30 days after the house became unoccupied, whenever precisely occupancy ceased — sometime during the four and a half years between Luster’s fall and her death. But we do not know whether the vandalism caused the loss — there is no judicial finding that the fire that was the immediate cause of the loss was the result of vandalism. To decide whether it was will require an evidentiary hearing, as will Allstate’s alternative ground that nonoccupancy substantially increased the risk of loss.
So the plaintiff is entitled to a remand, but it wants more and argues that Allstate waived denial of coverage by continuing to collect premiums for more than two years after learning, when the fire occurred, that the house had long been unoccupied. Eventually, as we know, it did return all the premiums that it had collected since 30 days after Luster had moved out of the house. Allstate’s argument that it did not receive notice that the policy was in force because its employee in the claims department whom Gikas advised of Luster’s death failed to relay the information to the responsible department in the company fails; the information was
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properly provided and Allstate’s careless handling of it cannot be charged to the Luster estate’s аccount. See
Madison County Bank & Trust Co. v. Kreegar,
Allstate’s delay in returning the premiums was not a deliberate attempt to keep money that Gikas had paid on behalf of Luster under the assumption that the insurance policy was in force (which in fact it was). In any event the delay does not bar Allstate from denying coverage of the loss caused by the fire. Although Allstate concedes that it was obligated to return all the premiums that it had collected after it cancelled the policy,
Bushnell v. Krafft,
Continued acceptance of premiums after cancellation can, as we also said, fоol the insured into thinking he’s covered and therefore deflect him from seeking substitute protection. And if as a result of being deceived in this way he fails to obtain substitute coverage and incurs a loss as a result, the company is estopped to deny coverage.
Home Ins. Co. v. Strange,
Since Gikas knew from the beginning that the house was unoccupied and knew that a change in occupancy within the meaning of the policy could eliminate Allstate’s liability under the vandalism and increase-in-hazard exclusions, there is no basis for estopping Allstate to deny coverage.
Ticor Title Ins. Co. v. Graham,
Some Indiana cases speak of an “implied waiver” rather than of estoppel, see, e.g.,
Tate v. Secura Ins.,
An
“implied
waiver” is neither waiver nor forfeiture; in Indiana insurance law it is a synonym for estoppel and so requires proof of reliance.
Tate v. Secura Ins., supra,
The plaintiff cites cases that say that a failure of prompt return of premiums waives the insurance company’s right to deny coverage, whether or not the company’s failure prejudiced the insured.
Farmers’ Conservative Mutual Ins. Co. v. Neddo,
Failure to attend to the distinction between cancellation and a denial of coverage is the Achilles’s heel of the plaintiffs argument that the continued collection of рremiums barred Allstate from denying coverage for the loss caused by the fire. A denial of
coverage
is governed by estoppel (or its synonym in Indiana, “implied waiver”), and relief from the denial requires
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proof of prejudice in order to avoid conferring windfalls on insureds. (Besides the cases cited earlier, see
Terre Haute First Nat’l Bank v. Pacific Employers Ins. Co.,
By aсcepting premiums for years after learning (or being deemed to have learned, since it was properly notified, even if the notice got lost in Allstate’s bureaucracy) of the change of occupancy that would have entitled it to cancel Mrs. Luster’s policy, Allstate waived its right to cancel, as we said. Each check that Gikas sent and that Allstate cashed after it knew the house was unoccupied was an offer made and accepted to continue the policy in force. The right to cancel is not an exclusion of coverage for particular losses but, as we explained earlier, an option for the insurer to exercise or not as it pleases.
Aetna Ins. Co. v. Robinson,
Reversed and Remanded.