The Montana Supreme Court held that the insurer had a duty to defend allegations of misrepresentation against the insured seller of a home. Huckins v. United Serv. Auto. Assoc., 2017 Mont. LEXIS 334 (Mont. June 13, 2017).
Barry Van Sickle placed his home on the market for sale and completed a Property Disclosure Statement. Where the statement asked for information about the basement, including leakage or flooding, he wrote "N/A."
Jessica Huckins made an offer on the house that was accepted. She had a home inspection performed and asked for home insurance costs. The inspection revealed an "unconventional" sump in the basement, and the home insurance quotes indicated that a claim for flooding in the house had been made in 2011.
When Huckins entered the house after closing, the basement was flooded. She sued Van Sickle for failure to disclose the previous basement flooding problems and set forth claims of negligent misrepresentation and fraud.
Van Sickle was insured by USAA. His homeowner's policy excluded coverage for damages "arising out of your failure, intentionally or unintentionally, to disclose information regarding the sale or transfer of real property. In addition to the homeowner's policy, Van Sickle, who had moved to and rented a home in California, had a renter's policy.
USAA tendered the underlying suit to USAA, who conducted a phone interview with Van Sickle and his wife. Thereafter, coverage was denied based on the exclusion and because allegations of misrepresentation and concealment did not rise to an occurrence.
Van Sickle settled with Huckins and assigned rights under all his policies with USAA. Huckins then sued USAA for breach of the duty to defend Van Sickle. Summary judgment was granted to USAA because the trial court found the claim did not constitute an "occurrence" as defined by the policies.
The Montana Supreme Court agreed there was no duty to defend under the homeowner's policy based upon the exclusion for failure to disclose information regarding the sale of real property.
The renter's policy was similar to the homeowner's policy, but did not have the failure to disclose exclusion. In the interview with USAA, Van Sickle's wife had explained they understood the Disclosure form to be asking about current problems, not prior problems. The Montana Supreme Court had previously held that policy language defining accidents may include intentional acts of the damages that were not objectively intended or expected by the insured. The statements given by the insureds during the interview indicated they were confused about the Disclosure form and how to complete it accurately, raising a legitimate question about whether they intended to provide inaccurate content in their answers. It was impossible to conclude that Huckins' claims fell outside the Renter's Policy. Therefore, USAA had a duty to defend Van Sickle, at least until a ruling was obtained declaring there was no coverage.
