Insurance Coverage Can be Limited

Every homeowner should have homeowner's insurance in order to protect against property damage, suits for personal injury, and the like. However, just having homeowner's insurance does not guarantee that it covers all claims.

A recent lawsuit arose out of the sale of a house. After the sale, the buyers sued the sellers, claiming that the sellers had falsely stated on a disclosure form that the home had no water problems, flood damage, or mold. The sellers made a claim on their homeowner's insurance policy, but the insurer refused to defend them. The sellers then sued the insurer, seeking a court declaration that the insurer had to defend them and pay any judgment taken against them.

The sellers' theory was that the buyers' lawsuit made allegations about the existence of "property damage" and that property damage was covered under their homeowner's policy. The insurer responded that property damage is covered only if it is the result of an "occurrence," and making misrepresentations during the sale of a house was not an occurrence under the policy.

The Illinois court agreed with the insurer. It found that the word "occurrence" was used in insurance policies to eliminate the need to determine the exact cause of a loss and that it often broadened coverage. However, in order to be an occurrence, the event causing the property damage still had to be unexpected, unforeseen, or accidental. Because the false statements did not cause the property damage, they were not an occurrence and therefore were not covered.

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