Estate Of Wavie Luster By Its v. Allstate Ins. Co., 09-2483.

Decision Date23 March 2010
Docket NumberNo. 09-2483.,09-2483.
Citation598 F.3d 903
PartiesESTATE OF Wavie LUSTER by its personal representative, Rick Gikas, Plaintiff-Appellant, v. ALLSTATE INSURANCE COMPANY, Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

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Stephen C. Bower (argued), Thiros &amp Stracci, Merrillville, IN, for Plaintiff-Appellant.

Thomas R. Haley, III (argued), Jennings, Taylor, Wheeler & Haley, Carmel IN, for Defendant-Appellee.

Before POSNER, RIPPLE, and WOOD Circuit Judges.

POSNER, Circuit Judge.

This diversity suit for breach of an insurance contract was dismissed on summary judgment. The suit is governed, so far as the substantive issues are concerned, by Indiana law, and the plaintiffs appeal presents issues of both contract interpretation and Indiana insurance law.

Mrs. Luster was a widow living alone in her house in Merrillville, Indiana. She had a homeowner's insurance policy from Allstate. In October 2001, when she was 83, she was injured in a fall and after being released from the hospital moved into an extended-care facility. She executed a power of attorney to her lawyer, Rick Gikas, who is the representative of her estate in this litigation. She never returned home, and died in April 2006, some four and a half years after her fall. Gikas had notified Allstate of his power of attorney and had directed the company to bill the insurance premiums to his law office. No one lived in the house after she left it.

Three months after her death—her house still unoccupied—a fire caused extensive damage. Gikas submitted a claim on behalf of the estate. An investigation indicated that the fire may well have been started by burglars, but the plaintiff denies this and the district judge made no finding.

In the course of the investigation Allstate discovered that the house had been unoccupied for four and a half years before Mrs. Luster's death, and denied the claim precipitating this suit. Allstate continued billing Gikas for premiums, however, and he continued paying them until October 2008, more than two years after the fire when Allstate—which claims not to have known that the policy was still in force until its lawyers read the estate's sum-mary-judgment brief that month—purported to cancel the policy retroactively to November 2001, and returned the premiums for the subsequent period to the estate.

The appeal requires us to consider four provisions of the insurance policy:

1. The insured "must... inform [Allstate] of any change in title, use or occupancy of the residence premises."

2. "If [the insured] die[s], coverage will continue until the end of the premium period for... [the insured's] legal representative while acting as such."

3. There is no coverage for loss to property "consisting of or caused by... any substantial change or increase in hazard, if changed or increased by any means within the control or knowledge of an insured person."

4. There is no coverage for loss to property "consisting of or caused by... vandalism or malicious mischief if [the insured's] dwelling is vacant or unoccupied for more than 30 consecutive days immediately prior to the vandalism or malicious mischief, " unless the dwelling is under construction.

1. Gikas didn't notify Allstate until after the fire that the house was unoccupied. He argues that the notice he gave Allstate, shortly after Mrs. Luster left the house for good—that he had a power of attorney and premiums should be billed to his office—gave the insurance company constructive notice that the house was unoccupied, or at least obligated the company to inquire about its occupancy. That is a frivolous argument. Allstate knew that Luster was 83, so it would come as no surprise to learn that she had executed a power of attorney and that the holder of the power would be handling her finances. That did not indicate that she'd moved out of the house.

Alternatively, Gikas argues that anyway the house was not unoccupied, be cause right up until her death Luster expressed the intention of returning to live there when her health permitted. "Occupancy" in Indiana law (as in insurance law generally) implies "the presence of human beings as at their customary place of abode, not absolutely and uninterruptedly continuous, but that must be the place of usual return and habitual stoppage, " Home Ins. Co. v. Boyd, 19 Ind.App. 173, 49 N.E. 285, 291 (1898). "A person's dwelling constitutes not the boundaries but the focal point of his life. He does not cease to have a home when he is temporarily absent therefrom, nor does his home cease to be an occupied dwelling. It is not his physical presence but the habitual recurrence of that presence that renders a dwelling occupied." Foley v. Sonoma County Farmers' Mutual Fire Ins. Co., 115 P.2d 1, 3 (Cal.1941) (Traynor, J.); see also 6A Couch on Insurance §§ 94:118-19 (3d ed.2005).

But though there is no "requirement] that some person must be living in [the house] every moment,... there must not be a cessation of occupancy for any considerable period of time." Insurance Co. v. Coombs, 19 Ind.App. 331, 49 N.E. 471, 473 (1898). Most of the cases in which the insured prevails involve absences of no more than three months. Monarch Ins. Co. v. Rippy, 369 P.2d 622, 624-25 (Okla.1962); Republic Ins. Co. v. Watson, 70 S.W.2d 441, 443-44 (Tex.Civ. App.1934); Phoenix Ins. Co. v. Burton, 39 S.W. 319 (Tex.Civ.App. 1896). The insurer tends to win when the absence is longer and the owner's plans to return are uncertain or indefinite, as in Schoeneman v. Hartford Fire Ins. Co., 125 Or. 571, 267 P. 815 (1928), where the insured's farm was unoccupied for two years and the owner intended to return only when he could "see [his] way clear to make the payments on the debt that was still against it, pay theinterest and the taxes and keep up the place, and eventually that way get it paid for." The present case is similar; the insured was away for years, and her intention to return was conditional on improving health that, as the years rolled by, became less and less probable. See also Spetli v. State Farm Fire & Casualty Co., 272 Kan. 751, 35 P.3d 860, 864 (2001); Stivers v. National Am. Ins. Co., 247 F.2d 921, 924-26 (9th Cir.1957) (California law); Washington Fire Ins. Co. v. Cobb, 163 S.W. 608, 614 (Tex.Civ.App.—San Antonio 1914).

Regardless of the owner's intentions, a house that stands unoccupied for four and a half years can hardly be described as "occupied" throughout that period, particularly when one considers the risk of theft, vandalism, fire, water damage, and so forth when a house is left empty for years on end. We need not try to pinpoint the date on which, regardless of the owner's intentions, a house has to be considered to have undergone a "change in... occupancy" within the meaning of the policy, triggering the duty of the insured (or, in this case, her representative) to notify the insurance company. Four and a half years of continuous absence of human occupation constitutes a change in occupancy.

The duty-to-notify provision entitled Allstate to cancel the policy in the event the house became unoccupied. Yet while arguing compellingly that Gikas had a duty to notify it that the house was unoccupied, Allstate is seeking to avoid coverage only on the basis of the third and fourth provisions above. The district judge, who found that the duty of notification had indeed been breached, attached no consequences to that breach but instead based his decision on the third provision. (We'll see later that the issue of cancellation is raised mainly by the plaintiff, as presenting an alternative ground for recovery.)

Although the policy expressly authorizes the insurer to cancel it for a violation of any of its terms, it also requires the insurer to give 30 days' notice of intention to cancel, and Allstate failed to do that after discovering in the wake of the fire that the house had been unoccupied for years. The requirement of notice of intent to cancel is important; it gives the insured an opportunity to prevent a lapse of coverage, by taking steps to reinstate the policy or obtain a substitute policy from another insurer. Conrad v. Universal Fire & Casualty Ins. Co., 686 N.E.2d 840, 842 (Ind. 1997); Krueger v. Hogan, 780 N.E.2d 1199, 1203 (Ind.App.2003). Retroactive termination is inconsistent with the requirement of advance notice. Plumlee v. Monroe Guaranty Ins. Co., 655 N.E.2d 350, 355-56 (Ind.App.1995); Green v. J.C. Penney Auto Ins. Co., 722 F.2d 330, 33233 (7th Cir. 1983) (Illinois law).

It might be argued that the duty to notify the insurer of a change in occupancy is a condition the breach of which cancels the entire policy. But the remedy of cancellation ("rescission" is the technical legal term) must be sought by the wronged party, and Allstate did not seek to cancel the policy when it learned of the change in occupancy. The insured's actions cannot by themselves void the contract. Prudential Ins. Co. v. Smith, 231 Ind. 403, 108 N.E.2d 61, 64 n. 3 (Ind.1952); New Life Community Church of God v. Adomatis 672 N.E.2d 433, 438 (Ind.App. 1996). It would be paradoxical to allow the wrongdoer's action to deprive the victim of the opportunity to sue for damages for breach or take other action that might be better from the victim's standpoint than rescinding the contract. "The contract is voidable at the election of the injured party. If he elects to affirm the transaction, he has his remedy by way of damages. If he elects to rescind, he must return back what hehas received, and in turn he is entitled to receive what he has parted with." Prudential Ins. Co. v. Smith, supra, 108 N.E.2d at 64. Rather than attempt to cancel the policy, Allstate, the party claiming to have been injured or wronged by the change of occupancy of which it had not been notified, accepted premiums for years after learning of the estate's breach. It cannot now be permitted to rescind the contract ab initio—that would be a confession...

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