May 3, 2010 

Written By Attorneys: John M. Clark and Erin Nulty 

This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.

According to the National Centers for Disease Control and Prevention, an estimated 4.7 million people are bitten by dogs in the United States annually. Of this number, approximately 800,000 seek medical treatment for the resulting injuries. The liability burden for these dog bites rests mainly with insurers. According to the Insurance Information Institute, dog bites account for one-third of all homeowners insurance liability claims, and cost insurers $387.20 million in 2008. For those carriers providing liability coverage for dog bites in homeowners policies, the costs to defend or settle such claims can be steep. Two recently issued New Jersey appellate opinions offer insurers some guidance regarding coverage for dog bite claims involving boarders and family members.

The first case, Homesite Ins. Co. v. Hindman, --- A.2d ---, 2010 WL 1628068 (N.J. Super. Ct. App. Div. April 23, 2010), addressed the applicability of the policy's business and rental exclusions in determining whether coverage could be denied due to the insured's rental activity. Prior to obtaining the policy at issue, the insured rented rooms in her home to three-to-four boarders. During the policy term, however, only two boarders lived there. One of the boarders was bitten by the insured's dog, and suit was filed against the insured.

The policy's business exclusion provided that coverage was excluded for bodily injury claims arising out of a business conducted by the insured. The rental exclusion precluded coverage for claims arising out of the rental of the premises. An exception to the exclusion allowed for the rental of the premises for residential occupancy, unless a single family unit was intended to lodge more than two boarders. The insurer brought a declaratory judgment action to obtain a judgment that no coverage existed under the policy because the insured conducted a business through the rental of the property and intended to rent to more than two boarders.

The court held that neither the business nor rental exclusions barred coverage, and ordered the insurer to provide a defense to the suit. In its analysis, the court examined the policy and determined that both the business and rental exclusions dealt with the same subject matter - the rental of the property. Relying on the law of contract interpretation, the court found that the rental exclusion provision took precedence over the business exclusion because it dealt specifically with the insured's conduct. The court then turned its attention to the rental exclusion, which presented an issue of first impression.

In construing the language of the rental exclusion, the court determined that the provision allowed the insured to rent a portion of the property for residential occupancy without losing coverage, as long as the insured did not actually rent to more than two boarders or intend to do so. The court disagreed with the insurer's argument that the insured's past renting to three or more boarders established her intent to rent to more than two boarders; instead, the court held that the insured's apparent intent at the time of the accident was dispositive of the issue. Because the insured had only two boarders at the time of the injury and was not actively attempting to find additional boarders, the court held that the rental exclusion was not applicable.

In the second case, Sierfeld v. Sierfeld, No. A-4280-08T3, (N.J. Super. Ct. App. Div. April 1, 2010) (unpublished), the court examined the meaning of the policy terms "resident" and "household" in holding that an adult daughter temporarily residing with her parents was excluded from coverage for bodily injury as an "insured person." In this case, the daughter intended to live approximately six months with her parents while she started her own business. Four months into her stay, she was bitten by the family dog and sustained severe facial injuries. The insurer denied coverage for her claim on the basis that she was a resident of the household and excluded from coverage as an "insured person."

The daughter filed suit against her parents and a declaratory judgment against the insurer seeking coverage under her parents' homeowners and umbrella policies. She argued that she was not a resident of her parents' home because she only intended to stay there temporarily. In addressing this argument, the court declined to hold that a person must intend to make a household her permanent residence in order to be a resident of that household. Instead, the court focused on the interpretation of the policy terms "resident" and "household." Finding that the terms were not ambiguous, even though "residence" was not defined in the policy, the court conducted a fact-specific inquiry into the living situation; it determined that the parties had a substantially integrated family relationship that made the daughter a "resident" of the home at the time of the dog bite. As a "resident," the daughter qualified as an "insured person" and was precluded from recovering under the policy.

In cases involving dog bites to individuals residing at the insured premises, these opinions demonstrate the differing coverage issues that come into play depending on whether the injured individual is a boarder or a family member. As the Sierfeld case shows, resident relatives, even those only temporarily residing at the household, can be denied coverage due to the familial relationship with the insured. Yet non-family members, including boarders, receive different treatment under the policy. Insurers challenging coverage for boarders should keep in mind that the rental exclusion may trump the business exclusion in polices containing both. In that event, the Hindman case demonstrates that the exclusion will be narrowly construed and that insurers relying on an "intent" argument need to have facts proving the insured's present intent to rent to more than two boarders in order for the exclusion to be applicable.