First Circuit Addresses “Insured Location” Exclusion in Homeowner’s Policy

In its recent decision in Vermont Mut. Ins. Co. v. Zamsky, 2013 U.S. App. LEXIS 20569 (1^st Cir. Oct. 9, 2013), the United States Court of Appeals for the First Circuit, applying Massachusetts law, had occasion to consider the applicability of exclusions in homeowners policies limiting coverage to insured locations.

The underlying loss arose out of a fire at what appears to have been a summer home which was owned by the insured but not identified in the insured’s homeowner’s policy as an “insured location.”  The insured’s daughter and several of her friends went to the house and while there tried to light a fire in a portable fire pit.  Gasoline was introduced to the fire, resulting in a large flash of flames that caused severe burns to three of the individuals present.  Suit was later brought against the insured, and the matter was tendered to the insured’s homeowner’s insurers: two primary insurers and an umbrella insurer.  The carriers agreed to provide the insured with a defense, subject to a reservation of rights to deny coverage based on what the court described as a “UL” exclusion (presumable uninsured location), precluding coverage for bodily injury:

            e. Arising out of a premises:

        (1) Owned by an "insured";

        (2) Rented to an "insured"; or

        (3) Rented to others by an "insured";

that is not an "insured location" . . .

The coverage dispute eventually resulted in litigation, and on motion for summary judgment, the United States District Court for the District of Massachusetts held that the exclusion was inapplicable because the fire did not result from a condition inherent to summer home. 

On appeal, the First Circuit observed the lack of any decisions by Massachusetts’ highest court – the Supreme Judicial Court – construing the UL exclusion.  The court nevertheless found instructive two decisions from the Massachusetts Appeals Court in Callahan v. Quincy Mutual Fire Insurance Co., 736 N.E.2d 857 (Mass. App. Ct. 2000) and Commerce Insurance Co. v. Theodore, 841 N.E.2d 281 (Mass. App. Ct. 2006).   In the Callahan decision, the Appeals Court held the exclusion inapplicable to a dog bite that happened at location owned by the insured, but not otherwise an “insured location,” because the dog was not a condition of the premises.  In Theodore, the Appeals Court held the exclusion applicable where a third party was on a premises owned by the insured, but not an “insured location,” to perform repair work on the premises.  Under such circumstances, the injury happened because of a condition inherent to the premises, and as such, the injury could be considered to have arisen out of the non-insured location.

The First Circuit reasoned that the Callahan and Theodore cases stand for the general principal that the phrase “arising out of a premises” as used in the UL exclusion means arising out of a condition of the premises.  As the court explained:

... the cases establish a dichotomy: if the covered occurrence arises out of a condition of the premises and the exclusion's other requirements are satisfied, the exclusion applies; otherwise, it does not.

The court further noted that this reading of the exclusion comported with case law from other jurisdictions, such as Louisiana and Ohio.

With this rule in mind, the court agreed that the exclusion was inapplicable to the underlying burn case because the fire was not caused by a condition of the premises.  Rather, the fire arose out of the use of the fire pit.  Because the fire pit was a portable device that was not inherently a part of the premises, and could not be considered a defect in the premises, there simply was not a sufficient connection between the home and the fire as required for the exclusion to apply.