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Paul & Bonnie Ames v. Peerless Insurance Company
Hearing #2005-15938, Decision Issued May 12, 2005.

The insureds requested a hearing following receipt of a notice of homeowners insurance nonrenewal citing business exposures on the insured premises. At hearing, the company argued that the home consists of two units one of which is offered for short term year round rental and the other of which supports a second business for the insureds. The company maintained that it does not write homeowners policies with such business exposures. The insureds explained that they rent out one unit of the home on a weekly basis during the summer months and to one tenant during the remainder of the year. The insureds further maintained that the other business is conducted exclusively by telephone, fax, regular mail and e-mail and causes no foot traffic.

Held: For the insureds. Although through its testimony, the company raised 24-A M.R.S.A. § 3049(4)(B) which permits cancellation (and via § 3051, nonrenewal as well) for the “failure to disclose a material fact in relation to the application for insurance that would, if coverage is effectuated without knowledge by the insurer, substantially alter the terms of the policy,” nothing in the wording of this notice informs the insureds that the failure to disclose information related to the businesses is the reason for nonrenwal. Section 3049(5) further permits cancellation (and via § 3051, nonrenewal as well) for “physical changes in the insured property that result in the property becoming uninsurable.” However, the evidence indicates that the home has been a two family dwelling since prior to the inception of the policy and the company did not explain how either business constitutes a physical change in the property. Although the company maintained that it does not write homeowners policies for properties with such business exposures because of the increased liability exposure, it did nothing to explain how that liability exposure is measurably increased. Instead, the company focused on the risk’s lack of compliance with underwriting guidelines. The policy includes business pursuits and rental exclusions. Although the company cited York Insurance of Maine, Inc. v. Superintendent of Insurance, 2004 ME 45, 845 A2d 1155, the York case was decided under different statutory language and the liability exposure in the York case is vastly different from this situation. Regarding the other business, the insureds credibly testified that there is no foot traffic as a result of the business and the company has not demonstrated to the contrary. Accordingly, the company has not demonstrated that the reasons contained in the notice of nonrenewal are good faith reasons related to the insurability of the property.

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