Seventh Circuit Allows Homeowners’ Insurance Bad Faith Lawsuit to Go Forward – Schuchman v. State Auto Prop. & Cas. Ins.
A couple from southern Illinois will have a chance to prove their personal injury lawsuit, thanks to a ruling from the Seventh U.S. Circuit Court of Appeals. In Schuchman v. State Auto Property & Casualty Insurance Co., Norman and Glenna Schuchman attempted to make a claim on their homeowners’ insurance after a fire damaged their home in Junction City, Illinois, near Centralia. The insurance company, State, denied the claim because the Schuchmans had moved from the home to mobile homes on the same property, making it no longer their “residence premises” as the policy defined it. They sued and the district court entered summary judgment for State. But the Seventh Circuit reversed, saying the term “residence premises” was ambiguous, and ambiguities are construed in favor of coverage.
Glenna Reed bought a parcel of land in Junction City in 1980, three years before she married Norman Schuchman. The parcel is 1.5 acres and contains eight lots along West 14th Street and Madison Avenue in Junction City. She moved into the home at issue, which was later assigned the address 109 West 14th Street, and moved her husband in after they married. She later added two mobile homes for family members, both of which were assigned mailing addresses on Madison Avenue. They bought the homeowners’ policy at issue in 2000, listing 109 West 14th Street as the address of the property to be insured. Sometime before 2004, however, they moved into two more mobile homes on the property. Because State did not cover mobile homes, they bought a separate policy covering these. Their son lived in the original home until 2008.
In 2010, the home caught on fire, causing severe damage to the structure and possessions inside. State eventually agreed to cover the possessions, but denied coverage for the damage to the house because it was not being used as a “residence premises” as the policy defined it, and because the Schuchmans had violated a special condition requiring them to maintain a residence only at the “residence premises.” The Schuchmans sued for insurance bad faith in Illinois state court; State removed the case to federal court. The court granted summary judgment to State on cross-motions.
In the policy, State agrees to cover “the dwelling on the residence premises shown in the Declarations, including structures attached to the dwelling.” The 14th Street address was listed as the residence premises, which “also includes other structures and grounds at that location.” Using these definitions, the Seventh Circuit concluded that the residence premises can be a location with multiple buildings, and that the Schuchmans may reside on any building within that location. It further concluded that the 14th Street address could include mobile homes that had other mailing addresses if they were on the same property. Thus, the court concluded, “residence premises” is ambiguous because it lacks a clear description of boundaries, and ambiguities are construed against the drafter. It sent the case back to district court to further consider their Illinois injury lawsuit.