Author: Mike Edwards
“I’ve got one of those ‘when it rains, it pours’ questions. Over the last month or two, we have been getting calls from some of our Personal Lines customers about the fact that their recently-graduated college kids can’t seem to find a job, and are moving back home. My initial thought was that there’s not really any new exposures with this, since the kids have somewhat come full circle, and are just residents of Mom and Dad’s again. But in an abundance of caution, as the saying goes, I thought I’d run this by you, in case I’m missing something.”
First, I think it says a lot that these customers call you for advice. That speaks well for the relationship the agency has with its customers. And given the current situation with the job market, especially for young adults, including college graduates, for every customer who does call you, there are probably many more who are equally affected, but do not contact you. In fact, I know of some agencies that are adding comments to their web site, or other customer-contact communications, inviting customers to contact the agency to discuss any changes that should be made to the family’s insurance.
The number of college graduates in this situation is significant. According to a March 2012 report released by the Pew Research Center (http://pewresearch.org/), a study conducted in December 2011 (“The Boomerang Generation”) found that 42% of college grads age 18-29 were living with their parents. Among the next age group of college grads – age 30-34 – only 10% lived with their parents.
Interestingly, in May of 2011, it was widely reported in much of the media that “85% of college graduates were living with their parents.” This has since been disproven. A group called “PolitiFact.com” (http://www.politifact.com/) did some fact-checking (apparently, the regular media did not), and discovered that the source of the report was a little-known web site which would not provide any convincing proof of its claim. On the other hand, The Pew Research Center is a well-known national organization, which describes itself as a “nonpartisan think tank.” At their web site, they published the report, along with details on their methodology. So I’d say their figures, while distressingly high, are more accurate. Safe to say that a lot of families are in the situation your customers have called about.
Regarding the insurance coverage issues, I agree with you, in general, that kids who reside at home are covered, regardless of age. At the same time, there could be some exposures with college-age kids returning home that probably wouldn’t be present with younger kids who have never lived away from home. Here are my thoughts.
For our discussion, assume Jack and Jill are Mom and Dad, and Jillette is their 23-year-old daughter, who recently graduated from college and has now moved back home.
Insureds. For Section I Property and Section II Liability & Medical Payments, the definition of “insured” includes anyone who is a “resident relative.” Neither term is defined in the policy. At the time when Jillette moves back in with Jack and Jill, through choice or circumstance, her status as an “insured” in their Homeowners Policy is not clear cut or automatic. In fact, there is a considerable body of jurisprudence dealing with this issue.
For example, if Jillette moves in with Jack and Jill for a month or two awaiting the start of a new job, or graduate school, there might be some doubt about her residency status. (“Boomerang Kid.”) In contrast, if she intends to live with them for the foreseeable future, she would have a stronger argument for residency. The jurisprudence is replete with endless variations on the issue of when residency exists.
To illustrate how uncertain the term is, consider this excerpt from one Louisiana court case, wrestling with the definition of resident: “The word ‘resident’ is flexible, elastic, slippery, somewhat ambiguous, obscure, and nebulous in meaning, has many definitions, and is difficult of exact or satisfactory interpretation.”
In situations where there is doubt about Jillette’s residency status in Jack and Jill’s Homeowners Policy, the safest course of action is for her to procure an HO-4 policy in her own name.
Coverage C – Personal Property. Jack and Jill’s Coverage C applies to “personal property owned or used by an insured while anywhere in the world.” Thus the personal property of Jack and Jill is covered worldwide. If Jillette has residency status, her property is likewise covered.
Coverage C Limitations. Jack and Jill’s Coverage C limit might not be sufficient, if Jillette brings a lot of stuff home. This is especially true if she has lived in an off-campus, unfurnished apartment, in which case she will likely have her own household furnishings & contents, TV, and numerous other items of personal property. In addition, she might have items such as cameras, jewelry, computers and other electronic equipment, which would need special attention, such as scheduling. In addition, if Jillette decides to become involved in some home-based business activities, coverage for business property must be reviewed, since the unendorsed ISO HO has sublimits which apply to business property both on and off the residence premises.
If Jillette has a lot of furniture and other large items, she might decide to put much of this property into a storage facility, such as a miniwarehouse. Under Jack and Jill’s policy, certain property off-premises is subject to a 10% limitation. Here is the excerpt:
“Our limit of liability for personal property usually located at an "insured's" residence, other than the "residence premises", is 10% of the limit of liability for Coverage C, or $1,000, whichever is greater. However, this limitation does not apply to personal property.”
It is important to note that this 10% limitation for Coverage C property which is stored off-premises at a miniwarehouse is NOT subject to the 10% limitation, under the ISO HO-1991 or HO-2000 coverage forms. The limit only applies to personal property which is “usually located at an insured's residence, other than the residence premises…” The limit only applies when an insured keeps property at another residence of his/hers. The miniwarehouse is not a residence; therefore the 10% limitation does not apply. However, under the new HO-2011 program, which was adopted for use in Louisiana on April 1, 2012, the 10% limit now does apply to property in storage at a “self-storage facility,” but there is a buy-back option.
Liability and Medical Payments. Section II applies to “insureds,” so if Jillette qualifies as a resident, she is an automatic insured for Section II coverages. Nonetheless, care should be exercised to discuss with Jillette if there are any potential coverage issues which could involve legal liability. For example, if she brings her dog home with her, and Jack and Jill’s Homeowners Policy has an animal exclusion, this needs to be resolved.
In addition, although Jillette is moving home because of the job market, she might undertake some incidental business activities from home. The ISO HO has a broad exclusion for business, but exempts certain business activities by insureds under age 21. Since Jillette is 23, she would not qualify for the exemption, and her business activities would fall within the business exclusion.
Depending on what her business activities are, some HO insurers will add endorsements to provide coverage. However, if her business involves online transactions such as buying and selling merchandise, for example, or if she does any technology-related work such as software/app development, web page design or similar work, she needs some sort of e-commerce or cyber liability coverage. Even if a home business endorsement is added, the HO policy only covers bodily injury and property damage under Section II, and these technology activities involve other types of exposures for which specialty policies must be purchased.
Recommendations. So long as the unique exposures Jillette brings with her (as discussed above) are addressed in Jack and Jill’s Homeowners Policy, she does not necessarily need her own HO-4. However, if she anticipates that she will be living at home for only a short time, she should be aware that the moment she is no longer a resident of Jack and Jill’s household, she will need her own HO-4. Also, if she has some exposures which complicate or compromise Jack and Jill’s policy, such as owning a dog with a bite history, or has a business exposure which Jack and Jill’s insurer is unwilling to add coverage for, then she should obtain her own insurance now.
PERSONAL AUTO POLICY
When a college kid moves back home, it must first be determined what coverages and policies are currently in force. Probably the most common situation is if Jillette has been driving one of the family cars (titled to Mom or Dad), while she was in college. If so, she has probably been considered a resident of their household while in college, and has therefore had the same coverage as any other family member. The other situation would likely be that she has an auto titled in her name, and has her own PAP. Let’s look at both situations.
Situation #1: Jillette drives a Ford Taurus, which Jack and Jill bought for her when she started college. It is titled to the parents, and listed on their PAP.
I do not see any coverage gaps in this situation. Assume that Jack and Jill’s PAP has 3 autos (Jack’s Lincoln MKZ, Jill’s Ford Explorer, and the Taurus Jill drives). The only issue I can think of is the rating on the Taurus, since most insurers rate autos based on the location where they are principally garaged. So once Jillette brings the Taurus home, the place of garaging will change from Baton Rouge to the location where Jack and Jill live.
Situation #2: Jillette owns a Ford Taurus, which is titled in her name, and listed on a separate PAP, with her as the only Named Insured.
I can think of two common scenarios with this situation. Scenario #1: Jillette drives her Mom or Dad’s car. Scenario #2: Another driving-age kid lives at home (let’s say Jack, Jr. – age 17), and he has an accident while driving Jillette’s Taurus.
Scenario #1 – Jillette driving Mom or Dad’s car.
Coverage for Jillette under Jack and Jill’s PAP. Jack and Jill’s PAP is primary. Jillette is an “insured” in their policy, in one of two ways. Excerpt from their PAP:
B. "Insured" as used in this Part means:
1. You or any "family member" for the ownership, maintenance or use of any auto or "trailer".
2. Any person using "your covered auto".
The PAP contains the following definition of “family member”:
"Family member" means a person related to you by blood, marriage or adoption who is a resident of your household. This includes a ward or foster child.
Therefore, if Jillette is a resident, she is covered by the provisions of B.1., for any auto. If she is not a resident, she is covered as a permissive user under B.2.
Issue #2: Coverage for Jillette under her own PAP. In Jillette’s PAP, she is covered in Part A Liability for the “ownership, maintenance or use of any auto or trailer.” Many of the exclusions in Liability are drafted to restrict the broad term “any auto” in order to provide the coverages intended. In Jillette’s PAP, the following Exclusion B.3. should be reviewed. Excerpt:
B. We do not provide Liability Coverage for the ownership, maintenance or use of:
3. Any vehicle, other than "your covered auto", which is:
a. Owned by any "family member"; or
b. Furnished or available for the regular use of any "family member".
However, this Exclusion (B.3.) does not apply to you while you are maintaining or "occupying" any vehicle which is:
a. Owned by a "family member"; or
b. Furnished or available for the regular use of a "family member".
While her PAP excludes an auto that is owned by a family member, exception a. in the “However” section above provides coverage for Jillette in her own policy while she is “maintaining or occupying” (which includes driving) that car. This would provide coverage for Jillette in her own PAP while she is driving her Mom or Dad’s car. Jillette’s PAP is excess.
Scenario #2: Jack, Jr. driving Jillette’s car.
Issue #1: Coverage for Jack, Jr. under Jillette’s PAP. Jillette’s PAP would be primary, and Jack, Jr. would be an insured, either as a “family member” (see “Insured” B.1. above) or a permissive user (see “Insured” B.2. above), as discussed in Scenario #1.
Issue #2: Coverage for Jack, Jr. under Mom and Dad’s PAP. For excess coverage, Jack, Jr. is NOT covered by Jack and Jill’s PAP, if Jillette is considered a resident family member. Refer to the preceding discussion of Exclusion B.3. above. Mom and Dad’s policy excludes liability coverage for an auto “owned by a family member.” [Jillette’s Taurus.] The only exception is “while you are maintaining or occupying” the vehicle. In the PAP, “you” is defined as the named insured and resident spouse (i.e., Jack and Jill only). Jack, Jr. is not a “you,” so he is not an insured in Mom and Dad’s PAP while he driving Jill’s Taurus. On the other hand, if Jack or Jill were driving (“maintaining or occupying”) Jillette’s Taurus, their PAP would cover them on an excess basis. Jillette’s PAP would be primary.
However, if Jillette is not considered a resident of Jack and Jill’s household, then Exclusion B.3. in their PAP would not apply, since Jillette’s Taurus that Jack, Jr. is driving is owned by someone who is not a “family member.” Therefore, in that situation, Jack, Jr. would be still be covered under his Mom and Dad’s PAP for his use of Jillette’s car. [Their policy would be excess.]
Recommendations. There is no perfect solution for the coverage gap described immediately above, where Jack, Jr. is not an insured in his Mom and Dad’s PAP, when he drives Jillette’s Taurus. Since the only coverage Jack, Jr. would have in this scenario is under Jillette’s PAP, about all that can be done is to be sure the limit of liability in her policy is no lower than the limits under Mom and Dad’s PAP, where Jack, Jr. would normally be covered. The only other alternative is to be sure he never drives Jillette’s Taurus.
Last Updated: November 27, 2013
Copyright 2013 by the Independent Insurance Agents and Brokers of Louisiana.
All rights reserved.
Reprinted with permission.