Property Insurance in Estates
Over the course of administering an estate, a personal representative (sometimes called an administrator or executor) may face decisions related to insuring real estate that belonged to the decedent. Upon the death of an individual, insurance policies, like other contracts, often continue to be enforceable by the personal representative. See, e.g., Contracts of the Dead: When Should They Haunt the Living?, William A. Drennan, N.M. L. Rev., Vol. 49 (2019). In the case of homeowner’s insurance, however, contractual provisions buried in a policy may permit the insurer to cancel a policy where the real estate is no longer occupied. Furthermore, a Court, sua sponte, may inquire as to the status of insurance on any real property.
In one case before the Orphans’ Court of Cecil County, an estate attorney spent many hours on the impossible task of obtaining liability insurance after the Court raised the issue of insurance, sua sponte, during a hearing on a Maryland Rule 6-444 petition. Although the Court issued an order requiring that the personal representative obtain insurance, doing so was later found to be impossible given the presence of mold, structural issues, and problematic occupants.
In another estate, less than two months after the death of the owner, a fuel spill occurred from the heating oil tank located on the real property. When the spill was brought to the attention of the insurer, although coverage was provided, the insurer opted to cancel the homeowner’s policy citing the death of the owner and vacancy of the property as its grounds. Although many personal representatives may wish to evict individuals who continue to reside in the property after an owner’s death, in some instances having a property occupied can serve to limit damage (for example, by theft or leaks). An unoccupied property may also prove problematic in terms of obtaining or continuing insurance.
Where real property is held by a personal representative and insurance is obtainable, the personal representative should insure the property until it is sold or transferred. A personal representative, in accepting the duties imposed by law, should be prepared to advance funds for insurance premiums, taxes, and other expenses associated with maintaining and preserving estate assets. Indeed, Maryland law recognizes the authority to insure estate assets against loss. Maryland Estates & Trusts § 7-401.
Furthermore, the failure to obtain insurance or renew policies could anger beneficiaries should a calamity occur and may subject the personal representative to personal liability. See Gibber on Estate Administration, 6th ed. 2018, § 3.19.
Although a lengthy will may not be something clients anticipate, or enjoy reading through, many provisions should be included in estate planning documents in the event of unforeseen circumstances. The inclusion of provisions related to insurance may never be needed by your personal representative, but the failure to include such provisions may force your estate to needlessly expend much time and effort.