Colorado Court of Appeals clarifies “premises owned” exclusion commonly found in homeowners’ insurance policies

A clear and unambiguous “premises owned” exclusion in homeowners insurance policies eliminates the duty to defend for all types of claims at all premises not listed in the policy.  In Sachs v. American Family Mutual Insurance Company, the Sachses requested their homeowners insurance policy defend them for several claims, including a negligent misrepresentation claim for the sale of their former home. 09CA1536, 2010 WL 3259822 (Colo. App. Aug. 19, 2010). The decision rested on whether the claim fell under the “premises owned” exclusion below:

14. Premises Owned, Rented or Controlled.
We will not cover bodily injury or property damage arising out of any act or omission occurring on or in connection with any premises owned, rented or controlled by any insured other than an insured premises.

“Insured premises” was further defined in the policy as “that dwelling, related private structures and ground at that location where you reside.”

The Sachses filed a motion for summary judgment and argued that the claim did not fall under the premises owned exclusion because the exclusion applies 1) only to currently owned premises, and 2) only to premises liability claims. Essentially, the Sachses’ argument was that because they no longer owned the property, their homeowners insurance policy should cover all claims to that property.

American Family filed a cross-motion for summary judgment and argued that the negligent misrepresentation claim against the Sachses fell within the premises owned exclusion. American Family’s argument was that the provision specifically excluded coverage to all premises not listed in the policy. American Family further claimed the exclusion applies 1) to both currently owned and previously owned premises, and 2) to all types of claims at the subject properties.

Both the District Court and the Court of Appeals agreed with American Family. In making its decision, the Court of Appeals held that the plain language of the policy excluded all premises not listed under the policy. The Court also noted if it agreed with the Sachses, an insurance company would not be able to assess the risks associated with premises not listed under the policy. To hold otherwise, “an insured could obtain coverage by simply conveying the premises where the act or omission occurred to someone else.”

The Court further held that the premises owned exclusion applies to all types of claims. The Court again relied on the plain language of the policy and the unexpected result if it held otherwise. However, the Court noted several cases that properly held coverage existed because the specific policy exclusions contained ambiguous language. See Tacker v. American Family Mutual Insurance Co., 530 N.W.2d 674 (Iowa 1995); Hanson v. General Accident Fire and Life Insurance Corp., 450 So.2d 1260 (Fla. Dist. Ct. App. 1984). Yet those same cases held that express and unambiguous language, similar to the exclusion in this case, would effectively limit coverage and properly express the intent of the parties. Therefore, the Court granted summary judgment in favor of American Family.

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