This diversity suit for breach of an insurance contract was dismissed on summary judgment

* * * , and the plaintiff’s [Estate of Luster’s] appeal presents issues of both contract interpretation and Indiana insurance law.

[Wavie] Luster was a widow living alone in her house in Merrillville, Indiana. She had a homeowner’s insurance policy from Allstate [Insurance Company]. In October 2001, when she was eightythree, she was injured in a fall, and after being released from the hospital moved into an extendedcare 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 notifi ed Allstate of his power of attorney and had directed the company to bill the insurance premiums to his law offi ce. No one lived in the house after she left it.

Three months after her death—

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

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

[hastening] this suit. Allstate continued billing Gikas for premiums, however, and he continued paying them until October 2008, more than two years after the fi re, when Allstate—which claims not to have known that the policy was still in force until its lawyers read the estate’s summary-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 [certain] provisions of the insurance policy: [The policy required the insured to notify Allstate of any change in occupancy of the premises and excluded coverage for property loss caused by

“any substantial change or increase in hazard” or by “vandalism or malicious mischief” if the insured’s dwelling was unoccupied for more than thirty consecutive days immediately prior to the vandalism or malicious mischief.]

* * * *

Gikas argues that * * * the house was not unoccupied, because right up until her death Luster expressed the intention of returning to live there when her health permitted.

Regardless of the owner’s intentions,

* * * four and a half years of continuous absence of human occupation constitutes a change in occupancy.

[Emphasis added.]

The duty-to-notify provision entitled Allstate to cancel the policy in the event the house became unoccupied.

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 thirty days’ notice of intention to cancel, and Allstate failed to do that after discovering in the wake of the fi re 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.

Retroactive termination is inconsistent with the requirement of advance notice.

[Emphasis added.]

* * * *

The district judge ruled that leaving the house unoccupied constituted a “substantial change or increase in hazard” within the meaning [the policy]. The judge seems to have thought that to leave a house unoccupied for however short a time causes an “increase in hazard” as a matter of law. Allstate takes the more moderate position that any gap in occupation of more than thirty days increases hazard as a matter of law.

Neither position is correct.

Houses are rarely occupied continuously.

A homeowner might take a thirty-one-day trip; Allstate implies that if a fi re occurred during that period the insured would be uncovered.

That is not the law.

Allstate’s argument thus implies that if you have a second home the homeowner’s policy on your primary residence is illusory; you’re away a lot and so coverage lapses.

That’s nonsense. And even if the house is unoccupied in the relevant sense—the sense that triggers the duty to notify the insurance company of a change in occupancy—it doesn’t follow that you have created a “substantial * * * increase in hazard.” Maybe you fi tted the house with an array of locks and alarms and hired a security company to check on the house daily and so made the house more secure than when you were living there—an especially plausible inference if you happen to be an elderly person who might if in residence damage it inadvertently by leaving appliances on or failing to remove combustibles

[fl ammable items] like cans containing paint or oil-soaked rags or to attend to defects in the electrical wiring of the house. There is no rule that moving out of a house per se

[in itself] increases the hazards against which the insurance company has insured you. [Emphasis added.]

* * * *

There may well have been vandalism, by burglars, and if so it occurred more than thirty days after the house became unoccupied, whenever precisely occupancy ceased—sometime during the four and a half years between Luster’s fall and her death. But we do not know whether the vandalism caused the loss—there is no judicial fi nding that the fi re that was the immediate cause of the loss was the result of vandalism.

To decide whether it was will require an evidentiary [relating to evidence] hearing, as will Allstate’s alternative ground that nonoccupancy substantially increased the risk of loss.

Questions:-

1. Why did the court conclude that an unoccupied house did not necessarily create a substantial increase in hazard?

2. Why did the court hold that Allstate’s cancellation of the policy, retroactive to November 2001 (when Luster moved to an extended-care facility), was ineffective?