ESTATE OF LUSTER v. ALLSTATE INSURANCE CO. (March 23, 2010)

Wavie Luster lived alone in her home in Merrillville, Indiana. In late 2001, she was hospitalized after a fall. Upon her release from the hospital, she immediately moved into an extended-care facility, where she remained until her death in 2006. A fire caused extensive damage to her home a few months after her death. Her personal representative submitted a claim on the estate's behalf to Allstate Insurance Company, which had provided insurance on the home for years. Allstate denied the claim on the basis that her home had been unoccupied for over four years. Notwithstanding the denial, Allstate continued to bill Luster's representative and he continued to pay the premiums for more than two years after the fire. In late 2008, Allstate attempted to cancel the policy retroactive to November of 2001 and returned the premiums for that period. The estate brought suit against Allstate for breach of the insurance contract. The district court granted summary judgment to Allstate. The estate appeals.

In their opinion, Judges Posner, Ripple, and Wood reversed and remanded. The Court noted four relevant policy provisions: 1) the insured had an obligation to inform Allstate of any change in the use or occupancy of the premises, 2) the policy continued in effect after the death of the insured until the end of the premium period, 3) there was no coverage for a loss caused by an increase in hazard known to the insured, and 4) there was no coverage for loss caused by vandalism if the property was unoccupied for 30 consecutive days prior to the loss. With respect to notice requirement for a change in occupancy, the Court concluded that the 4+ years in which the house stood empty constituted a change in occupancy, notwithstanding the owner's desire to return. But Luster's failure to notify did not result in a automatic termination of the insurance contract. It was merely a breach, entitling Allstate to certain remedies, which may or may not have included rescission under Indiana law. In any event, Allstate took no action upon learning of the change in occupancy. It continued billing for and receiving the premiums for two years. With respect to the second provision, the Court concluded that the death clause could not revive a policy that had already lapsed -- it merely prevents a coverage lapse upon the death of the insured. It has no application here. The third provision is the provision the district court relied on in granting Allstate summary judgment. The district court ruled that leaving the house unoccupied constituted an increase in hazard as a matter of law. But the Court rejected that conclusion, stating that there is no rule that an unoccupied home for any period of time increases the hazard as a matter of law. Rather, an evidentiary hearing is required for Allstate to prevail on this ground. Finally, with respect to the fourth provision, the Court noted that there was no finding with respect to the cause of the fire. It may well have been caused by vandalism, and, if so, it certainly occurred more than 30 days before the house became unoccupied. The Court concluded that an evidentiary hearing on remand is required to resolve that issue, as well. Before it reversed and remanded, however, the Court had to deal with the estate’s argument that Allstate's waived its right to deny coverage by collecting the premiums for more than two years after learning that the house was unoccupied. The Court rejected the argument. If Allstate was entitled to deny coverage, it was entitled to do so because of the “increase in hazard” or “vandalism” exclusions, not because it had a right to cancel the coverage entirely. Collecting the premiums is not inconsistent with enforcing the exclusions in the policy.