In the wake of the wildfires that devastated Southern California in October of last year, more than 22,000 insurance claims were filed, according to the Insurance Information Network of California. While the bulk of those claims may be for additional living expenses due to the mass evacuation of San Diego County, at least 1,500 homes were destroyed by the fires. The issues involved in fire benefits under a property policy may not be as contentious as those arising from claims that resulted from Hurricane Katrina, but with so many claims filed, disagreements are bound to arise.

This is the second in a series of blog entries that will examine decisions relating to the 2003 Cedar Fire as a guide to issues that may arise in disputes relating to the October 2007 wildfires. For the first entry, click here.

In Weiss v. Interinsurance Exchange of Auto Club, No. D047660 (Cal. App. Ct., May 15, 2007), the plaintiff insureds sought coverage under three separate homeowners insurance policies for a family collection of books, prints, lithographs, and other items valued at approximately $1.6 million. The collection was on loan to the Chabad organization at the time of the Cedar Fire of 2003 and was destroyed along with the Chabad building in which it was stored. Prior to the fire, portions of the collection had been stored at all three of the insureds’ homes.

While the policies all provided coverage for personal property “while it is anywhere in the world,” the defendant insurer determined that the loss fell under a limitation in all three policies that restricted coverage to 10 percent of policy limits for personal property “usually situated” at a location other than the covered homes. The insurer based its decision on the “indefinite length” of the insureds’ loan of their collection to Chabad. It also based its decision on the following facts: the first property had been sold by the insureds prior to the fire; the insureds were only living at the second property on a “temporary basis” while their dream home was under construction; and the third home was listed for sale at the time of the fire. Therefore, according to the insurer, the collection could not be deemed “usually situated” at any of the three insured homes.

The trial court found that the phrase “usually situated” was unambiguous and meant that personal property stored at a location other than the covered home for more than 50 percent of the time a home is owned is not “usually situated” at the covered premises. Because the loan of the collection to Chabad was open-ended, the court found that property was not “usually situated” at any of the three covered properties. On that basis, the trial court ruled in favor of the insurer.

On appeal, the appellate court upheld the decision as it related to the first home. As the first home had been sold and the insureds would not be able to return the collection to that home, the court found the collection could not be considered “usually situated” at that home under any interpretation of the phrase. Therefore, the policy limitation was unambiguous under the circumstances relating to the first home.

However, with respect to the policies covering the second and third homes, the appellate court reversed the trial court’s decision, finding the phrase “usually situated” ambiguous (at least in the context of the circumstances surrounding the second and third home). The word “usually,” reasoned the appellate court, could also mean “customarily” or “in the ordinary course of business,” in which case the insured’s intention with respect to the property, and not a comparison of time spent at each location, would be dispositive. In addition, it was impossible to determine how long Chabad would have kept the collection had it not been destroyed; the collection belonged to the insureds, who could have requested its return at any time. In the court’s reasoning, “[o]ne cannot interpret a limitation of coverage based on what might have happened if the loss had not occurred.” Accordingly, the court ruled that with respect to the policies covering the second and third homes, the insurer was required to compensate the insureds for the full policy limits concerning unscheduled personal property.