Dramatic changes in the structure and
composition of American households over the past 35 years has led
the U.S. Census Bureau to introduce new terminology to define and
categorize them.
As a reflection of the growing percentage of
households occupied by single people, unmarried cohabitants, and
unrelated roommates, the census bureau today distinguishes between
family and nonfamily households, each of which can have related or
unrelated “subfamilies.”
From these various living arrangements, “reference
people” are identified as those around whom “family units”
are organized; typically, though not always, these are the “householders,”
those who own or rent the dwelling.
Given how much American households and the
categories for counting them have changed over the past three
decades, one might find it surprising that the standard definition
of “insured” in a homeowners policy has remained unchanged
until recently, and still reads much as it did in the 1970s.
The standard definition grants insured status
to the named insured plus his or her relatives “residing in the
household,” and to anyone under age 21 residing in the household
and in the care of an insured.
While flexible in its application, the
definition of insured reflected the prevailing household structure
back when standardized countrywide homeowners forms were first
filed in the 1970s.
In 1970, married couples accounted for more
than 70% of U.S. households, and well over half of those couples
had children under age 18, according to census bureau statistics.
The typical life pattern at that time was for children to grow up
in households headed by their parents, then leave to form similar
households of their own.
By 2003, married couples accounted for barely
half of U.S. households, and less than a quarter of all households
feature a married couple with children.
Over the same period, there was a significant
increase in the percentage of households with women living alone,
a doubling of the percentage with men living alone, and a tripling
of the percentage of “other nonfamily households” (unrelated
people living together).
Life as a single person, once an exception
among young adults, has become the norm, as three-quarters of
Americans age 20-24 reported in 2003 they had never been married.
The single life is lasting into middle age for
a substantial and growing proportion of Americans. In 1970, well
less than 10% of people age 30-34 indicated they had never been
married. In 2003, 23% of women and 33% of men in that age group
had never been married.
Also, since 1970, those who have gotten
married have become more likely to divorce, although the divorce
rate has leveled off since the 1980s. The percentages of women and
men who reported they were divorced more than doubled between 1970
and 2003.
As a result of these and other trends, a
growing proportion of today’s American households have a
transitional quality, with greater fluctuation in structure and
composition than those of 35 years ago. Increasingly, households
reflect life stages more than permanent living arrangements.
In light of that, consultant Tim Ryles, former
insurance commissioner of Georgia, asks if the standard definition
of insured needs to be revisited, and some of its terms defined.
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Of all the changes affecting U.S.
households over the past 35 years (see main story), none
have generated more emotional debate or political
repercussions than moves to grant a legal status similar to
marriage to cohabitation arrangements, especially when the
partners are of the same sex.
AAIS acted in 2000 to comply with a
Vermont law requiring all insurance policies offered to
married couples, spouses, and their families be available to
people who had entered into “civil unions” allowed in
that state.
A mandatory endorsement filed in Vermont
for personal and commercial lines states that any reference
to a spouse in the policy includes a person who is a party
to a civil union, and that any reference to a family member,
relative, or family relationship includes the families of
the parties to a civil union.
While much attention has focused on the
fact that a Vermont civil union can grant a gay couple a
status comparable to that of a married couple, Vermont civil
unions can be created by heterosexual couples or two related
people, such as a parent or child, for purposes unrelated to
intimacy.
In that respect, the Vermont law differs
from a more recent Connecticut law recognizing civil unions,
but limiting them to same-sex couples.
Like Connecticut, New Jersey allows only
people of the same sex to register as “domestic partners,”
a status that confers certain rights related to health care
and property ownership, but is not intended to be comparable
to marriage and does not confer the full
rights of spouses.
California and Maine also have domestic
partner registries, but they are open to same-sex or
opposite-sex couples.
The variations among emerging state
statutes for granting legal status to non-married couples is
a complicating factor for any attempt to develop a
standardized countrywide treatment of non-married couples
for property/casualty insurance.
Another complication is the resistance
to such arrangements throughout the country.
At least six states--California,
Illinois, North Dakota, Ohio, Texas, and Virginia--prohibit
the establishment of civil unions within their borders, and
three of them--Ohio, Texas, and Virginia--void the civil
unions of other states when the parties to one are within
their borders. (California’s prohibition on civil unions
is related, in part, to its allowance of registered domestic
partnerships.)
It is unclear whether liability coverage
under a policy issued to partners to a civil union would
apply in the event a partner not named on the policy is sued
in a state that does not recognize civil unions.
Some insurers are reluctant to be too
accommodating to civil unions, either because they are
traditionally minded themselves or do not want to offend
traditionally minded agents and customers.
Some AAIS companies have indicated they
do not want to accommodate civil unions any more than
required by state law, and that they prefer to have any
provisions extending coverage to unmarried partners and
their families remain optional.
There are two models for the insurance
industry to draw upon if and when it develops a standardized
approach to insuring non-traditional couples and families
under a homeowners policy, says Susan Luecke, AAIS assistant
vice president of personal lines.
On one hand, AAIS has provided an
optional endorsement for providing homeowners coverage to
additional residents of a household, regardless of the legal
status of their relationship to the named insured (see main
story).
In exchange for a premium charge, this
endorsement provides property and liability coverage to a
specifically identified resident of the household who is
unrelated (in the traditional sense) to the named insured.
It also extends the “intra-family” exclusion to suits by
the additional resident against the named insured.
The additional resident endorsement was
developed for arrangements that were not necessarily
permanent, says Luecke, and explicitly states that coverage
applies only as long as the declared additional resident
lives in the named insured ‘s household.
On the other hand, endorsements
developed to comply with Vermont’s law establishing civil
unions is a model for an approach that incorporates partners
to a legally recognized union into the definition of
insured, with no explicit premium charge. |
In two columns available in the “Expert
Commentary” section of the International Risk Management
Institute Web site (www.irmi.org),
Ryles writes that courts in different states have interpreted the
meaning of “household” and “resident” in ways that have
expanded coverage beyond what carriers intended to provide.
In one case, a man’s homeowners insurer was
ordered to respond to a tort action brought against his estranged
wife, who lived separately in another insured residence. In
another case, an elderly woman’s homeowners insurer had to
respond to a liability claim against her grandson’s wife, who
was “house-sitting” for the insured while she recovered
elsewhere from injuries.
In both cases, coverage was triggered for
actions that arguably arose from “households” other than the
ones the carriers thought they were insuring. The judgments turned
on what the judges believe constituted “residency” in a “household.”
“In 21st century America, the meanings of
family and household are changing,” Ryles writes. “These
changes are not only the subject of legislative struggles, but are
being catalogued by the official statistics that often underlie
public policy.
“It is only a matter of time before these
concepts work their way into disputes over undefined policy terms.”
It would be no simple matter to define terms
within the standard homeowners definition of insured, however.
If a company or advisory organization sought
to define “household,” “relative,” or “resident,” in a
way that might limit coverage, regulators might assert that
coverage was being “taken away” and demand a premium reduction
to reflect it.
As it is, there is no apparent epidemic of
liability claims arising from non-traditional and transitional
households. That may be because the same trends that have changed
the structure and composition of American households have also
made them smaller.
“Changes in fertility, marriage, divorce,
and mortality have all contributed to declines in the size of
American households,” writes the Census Bureau in a November
2004 report.
In 1970, more than half of all households had
three or more people living in them; in 2003, only 40% of
households did. The biggest decline was in the “5 or more”
category, which fell from 21% of households to less than 10%.
With more, smaller households to insure,
homeowners carriers in the aggregate can collect more premium with
a better spread of risk, which may more than compensate for any
increase in unusual situations that lead to unintended exposures.
Homeowners policies have not remained static
in the face of social changes, however, and more changes are in
store that will enable insurers to address situations arising from
new household structures.
In 1996, AAIS introduced the first
standardized homeowners endorsement for giving insured status to
residents of a household other than those encompassed in the
standard definition of insured.
This endorsement enables insurers to provide
coverage for personal property, personal and premises liability,
and medical payments to a resident of a household who does not
have an insurable interest in the building property.
Among other things, this allows carriers to
insure unmarried cohabitants without requiring one of the partners
to purchase a renter’s form.
Unmarried-partner households constituted at
least 4.2% of all households in 2003, according to the
Census Bureau, and that figure may under-represent the prevalence
of unmarried couples because “respondents may be reluctant to
classify themselves as cohabitating and may describe themselves as
roommates, housemates, or friends.”
Under the AAIS endorsement, an additional
insured resident does not have to disclose the nature of his or
her relationship with the named insured, nor is coverage dependent
on any form of legal recognition.
AAIS will soon be filing other program changes
that will allow insurers to apply homeowners coverage to
increasingly common situations among households.
One of those situations is attendance at
post-secondary school, widely considered to be an imperative for
young adults.
Enrollment in post-secondary schools reached a
record 14 million students in 2002 and continues to climb as it
has done even through years when the traditional college age
population decreased.
An upcoming revision of the AAIS Homeowners
program adopts a modification to the
standard definition of insured.
The modification specifies that resident
relatives under age 25, as well as resident non-relatives under
age 21 in the care of an insured, are considered to be insureds
while enrolled full-time in school away from home, if they were
residents of the insured’s household before moving out, and are
still financially dependent on the named insured or his or her
resident spouse.
AAIS will carry coverage for students further
by introducing an endorsement that allows carriers to grant an
older or part-time student who lives elsewhere insured status on
his or her parents’ homeowners policy.
The endorsement will allow the named insured
to designate a person who is not an insured as defined by the
policy as an insured. He or she must have been a resident of the
insured’s household before moving out to attend the school
identified in the schedule that appears in the endorsement.
Amont other things, the endorsement will allow
families to purchase coverage on their homeowners policies for
part-time students and students age 25 or older, if the students
are related to the named insured. The endorsement can also be used
to provide coverage for non-related students who are under age 21
in the care of the insured.
The additional insured endorsement for a
student living away from home will allow a named insured to
purchase coverage for a young adult when the student has
transitioned from the physical home but not established a
household of his or her own.
Another endorsement option to be filed by AAIS
will enable insurers to provide coverage for certain persons,
typically elderly or handicapped, that is living in an assisted
living facility, and for whom the named insured is the legal
representative acting for the person in matters related to the
coverage under the policy.
The endorsement provides personal property and
personal liability coverage for a person related to the named
insured by blood, marriage, or adoption who regularly resides at a
declared assisted living facility and is, therefore, not a member
of the named insured’s household.
In addition to extending Coverage C (Personal
Property) and Coverage L (Personal Liability) to the resident of
the facility, the endorsement establishes separate sublimits for
loss tohearing aids, eyeglasses, wheelchairs, and other forms of
equipment commonly used by residents of assisted living
facilities.
In all, the coming enhancements to the AAIS
Homeowners Program continue the evolution of homeowners programs
to address transitional living arrangements without disrupting
longstanding provisions that have served well through years of
social change.
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All in the family
