Many commercial and homeowner policies contain provisions addressing vacancy. Often these provisions exclude coverage for property that is or becomes vacant during the policy term with exceptions for property under construction or renovation. Whether these exclusions and exceptions apply depends on the facts of each case, and courts have issued varying opinions.

Renovation/construction activity relevant even without an exception

As an initial matter, even when a policy does not contain an express exception for property under renovation/construction, an insured may still argue that these activities at the site remove the property from the definition of "vacant." As such, the analysis in this article is relevant to those interpreting insurance policies with vacancy exclusions either with or without renovation/construction exceptions.

Construction generally includes renovation

When policies include express exceptions, most except property undergoing "construction," and a smaller subset include "renovation" as well. Nonetheless, the clear trend for courts dealing with exceptions to vacancy exclusions is to construe "construction" broadly to include "renovation" or alterations to existing structures.

Vacant is more than devoid of contents

There is a body of case law that has spent considerable time discussing the meaning of vacancy and the purpose behind the exclusion.

The First, Fourth, and Eleventh Circuits have rejected the definition of "vacant" as "devoid of contents" and focused instead on the presence or absence of objects or activities customary for the property's intended use.1

In this vein, courts have noted that the meaning of "vacancy" will "depend on the type of premises involved" and "the type of insurance policy" in determining whether the activity at issue is consistent with its anticipated use. For example, in Knight v. U. S. Fid. & Guar. Co., 182 S.E.2d 693, 696 (Ga. App. 1971), the renovation activity was sufficient to constitute occupancy because a service station and restaurant cannot be held to the same expectation of human habitation as a dwelling house. In Ellmex Constr. Co., Inc. v. Republic Ins. Co., 202 N.J.Super. 195, 494 A.2d 339 (N.J.Super.Ct.App.Div.1985), the court held that under a builder's risk policy insuring a model home, the presence of realtors four days a week was sufficient to defeat the vacancy exclusion.

Fact-specific inquiries prevail

In Langill v. Vermont Mut. Ins. Co., 268 F.3d 46, 48 (1st Cir. 2001), the First Circuit Court of Appeals considered whether the owner's renovation activities removed the property from the impact of the vacancy exclusion. The insured testified that after her tenants moved out, she undertook to refurbish and clean-up the property, which was located only 35 feet from the insured's home. During this period, doors were kept locked, utilities were maintained, and heating oil was supplied. Her husband kept tools, a step ladder, two chairs, a mattress, frame and box spring, a radio and an ash tray at the property. He would spent one to two hours a day working there and sometimes visit at night. Several months into the renovation, the property burned as a result of arson.

The court held that the owner's activities were insufficient to defeat the vacancy exclusion. According to the court, the presence of personal property and the owner's "midday hour or so of work activity" and "random evening visits" did not "convey the appearance of residential living" or provide "effective anti-vandal protection." The court held that none of the owner's activities "changed the fact that at the critical and likely times for vandalism and arson, there was no one in the house to discourage, see, or hear marauders, or to hear the activation of smoke detectors."

The court noted that "there is a wide continuum between residency and absolute absence of human presence from the premises" and left open the possibility that under a different "set of facts," activities by a non-resident might so "parallel the condition of residency as to avoid application of the exclusion."

In The Farbman Grp. v. Travelers Ins. Companies, 03074975, 2006 WL 2805646 (E.D. Mich. Sept. 28, 2006), the court considered a policy with a vacancy exclusion that stated: "Buildings under construction or renovation are not considered vacant." The court held in favor of the insured that the property was "under construction." The "[c]ontractor characterized the project as entailing the demolition of the walkway, the restoration of the two buildings' facades to an acceptable condition, and the restoration of any sidewalks, doors, landscaping, and the like that had been altered or removed in the course of constructing the walkway." The court noted that: "In carrying out their walkway removal and building restoration tasks, workers were on site on a daily basis during the entire period surrounding the December 10, 2002 flooding, from November 5 until December 22 of that year."

Considering a similar exclusion and exception, the court in Suder-Benore Co., Ltd. v. Motorists Mut. Ins. Co., 2013-Ohio-3959 (Ohio Ct. App. Sept. 13, 2013), found that the exclusion applied. Despite visits by workers on January 13, 14, 17, and February 3, the property was not under construction on February 8. The court stated that the purpose of the work was not to "renew" or "restore" the building but simply to provide a functional sprinkler system for the adjacent business. Furthermore, "the extent of the work was de minimis—changing out a few parts, testing the air, and turning on the water."

In Belich v. Westfield Insurance Co., No. 99-L-163, 2001 WL 20751 (Ohio Ct.App. Dec. 29, 2000), the court considered a vacancy exclusion with an exception for property "under construction or renovation." The court found that the evidence was insufficient to support the insured's argument that the property was under renovation. The extent of the work done as described in the affidavits was the removal of a stage and coat racks. The court noted that the insured failed to present evidence as to when the work was performed or what the renovation process entailed: "Nowhere does appellant point to any evidence in the record of activity that occurred at the building during the sixty days preceding the damage."

The substantial and continuing standard

Many recent decisions have espoused a "substantial and continuing" activity standard. While this standard may appear more straightforward, the case law has proven that this analysis is similarly fact-intensive.

In Vennemann v. Badger Mut. Ins. Co., 334 F.3d 772, 773 (8th Cir. 2003), the Eighth Circuit Court of Appeals rejected the insured's argument that twice weekly overnight stays or a $5000 renovation project constituted substantial continuing activities that would trigger the construction exception to the vacancy exclusion. The court held that the "being constructed" clause "was not meant to extend coverage to relatively minor, individual projects."

In TRB Investments, Inc. v. Fireman’s Fund Insurance Company, 40 Cal.4th 19, 30 (2006), the Supreme Court of California held that the "under construction" exception to the vacancy exclusion in that policy required "the substantial and continuing presence of workers at the premises" or "substantial continuing activities" by persons associated with the project at the premises during the relevant time period. The court noted that the insurer's evidence suggested that only a "handful of workers" were at the site performing "minor tasks" and that their presence was "sporadic at best." The court noted that evidence regarding the scope of work was unhelpful in determining how often the workers were present and when, and remanded the case for further evidence on this point.

On remand, the insurer filed a virtually identical motion and failed to indicate "the number of people associated with the construction project, how many hours per day or days per week they were in the building, and how much of the building was occupied by these persons at any given time." In its response brief, the insured submitted "additional evidence relevant to the new standard, including a declaration tabulating 884 person-hours of work on the building between June 20 and July 14, 2001." Based on this evidence, the court denied the insurer's motion for summary judgment under the vacancy exclusion.2

Detailed evidence is key

If there is one take-away from this body of case law, it is that disputes over vacancy are fact-intensive and will require gathering evidence to support an argument for or against vacancy. We have seen first-hand the importance of evidence such as payroll records, construction schedules, permitting applications, scopes of work, and declarations regarding the presence or absence of workers.