How One Family Beat Their Insurance Company: Lessons from McFarland v. Liberty Insurance

How One Family Beat Their Insurance Company: Lessons from McFarland v. Liberty Insurance

When the McFarlands’ insurance claim was denied, they didn’t give up. Instead, they appealed—and the Idaho Supreme Court ruled in their favor.

Insurance should be there to protect you, but sometimes even the most careful homeowners face challenges with claims. McFarland v. Liberty Insurance Corporation, a recent Idaho Supreme Court case, offers valuable insights into homeowners’ rights and policy language. Here’s what happened and three key lessons for homeowners.

The McFarland Case: A Fight for Fair Coverage

Obtaining Homeowner’s Insurance

In September 2015, Kathryn called Liberty Mutual to insure her family’s vacation property in Garden Valley, Idaho. She outlined the property’s layout: a cabin, a garage with an upstairs bonus room, and a pump house. The garage’s bonus room was where the family gathered, worked, and sometimes stayed overnight. Liberty issued a policy that categorized two different kinds of buildings in either “Dwelling Coverage” or “Other Structures” coverage. The policy did not indicate which buildings fell under which category, and the failure to do so would later become central to the case.

The Damages

In February 2017, while the McFarlands were away from their vacation home, the radiant heater in the garage’s bonus room failed, causing water to pour over everything for about two days. The damage affected many belongings—including a queen-sized bed, a leather sofa, and a ping-pong table—and required significant repairs to drywall, doors, garage doors, plumbing, and electrical systems.

The McFarlands filed a claim with Liberty and hired a water remediation company to repair the damage, a decision Liberty did not object to.

The Missing Payout

Liberty began paying the claim within three weeks, but the amount was far from what the McFarlands expected. Liberty covered only a small portion of the structural repair costs and refused further payments.

Despite Liberty’s initial partial payments, the McFarlands were confused. According to their policy, they believed they were entitled to $188,500 under “Dwelling Coverage,” which would cover the full expenses. However, Liberty claimed the bonus room and garage were only eligible for coverage under “Other Structures,” with a payout limit of $22,350.

When the McFarlands reviewed the policy, they saw that Liberty’s denial relied on an ambiguous interpretation of the word “dwelling.”

Taking the Case to Court

The McFarlands filed a breach of contract complaint in Ada County District Court, and Liberty filed a counterclaim. The district court ruled in Liberty’s favor.

Despite this setback, the McFarlands were confident that their coverage should include the bonus room as part of the “Dwelling.” They had requested specific coverage, paid their premiums in full each year, and believed they were entitled to the full policy benefits. Arguing that the policy language was ambiguous, they appealed the district court’s decision.

Key Points in Winning the Appeal

To win the appeal, and receive the money from the insurance company, the McFarlands needed to address these points:

  1. Is the term “dwelling” ambiguous in the insurance policy?
  2. If so, does the ambiguity favor the McFarlands?

The McFarlands successfully argued that “dwelling” was not clearly defined and lacked a single accepted legal definition. The Idaho Supreme Court ruled that ambiguity in the term should favor the insured, leading to a reversal in the McFarlands’ favor.

Three Lessons Every Homeowner Should Know

1. A Lack of Clear, Plain Language Favors the Insured 

Insurance policies must be clear. Courts often side with policyholders when insurers use vague terms to deny claims. 

In this case, the policy was reviewed and though many other words were specifically defined within the document, no specific definition of “dwelling” existed. The McFarlands pointed to previous cases where different interpretations of “dwelling” had been accepted, highlighting that no single legal or commonly accepted definition applied.

After reviewing the cases and multiple dictionary definitions, the Supreme Court ultimately determined that more than one definition for the word “dwelling” exists, and since the policy didn’t define the word, the policy was ambiguous, i.e., it had multiple reasonable interpretations.    

Because “dwelling” was not clearly defined, the court ruled in favor of the McFarlands, aligning coverage with their reasonable expectations.

Takeaway: If an insurance company uses unclear or vague language to deny a claim,  ambiguity will be construed in favor of the policyholder, against the insurance company. Courts often hold insurance companies responsible for providing clear definitions, and if those definitions are missing, the policyholder’s reasonable interpretation may prevail.

2. Consider the Entire Policy—Not Just One Section

Even if a single word or phrase is unclear in one part of a document, the entire document must be reviewed to see if a concrete definition emerges. In McFarland v. Liberty, two different meanings of “dwelling” remained plausible even after reviewing the entire policy.

Liberty Mutual argued that the garage and bonus room fell under “Other Structures,” but the McFarlands pointed out that the entire property layout had been explained upfront, and the family used the bonus room as living space. The Idaho Supreme Court agreed that considering the whole policy meant recognizing the building’s dual purpose as both a “dwelling” and an “other structure.”

Takeaway: When filing a claim, be prepared to review the full policy, including all coverage types, terms, and conditions. If one part of the policy suggests coverage, don’t let a single section that the insurance company cites dissuade you. Courts look at the entire policy to understand what coverage should apply.

3. Be Detailed and Transparent with Insurers When Purchasing a Policy

The McFarlands were careful about describing their property to Liberty Mutual when they first bought the policy. This transparency became essential when they needed to prove that their policy should cover damages to the garage and bonus room. 

Takeaway: When obtaining homeowners insurance, be detailed and explicit about how each building on your property is used. This documentation can help avoid disputes about coverage eligibility down the road. Also, if you make any changes to how you use your property, update your insurance company to prevent future claim issues.

A Win for Homeowners

The Idaho Supreme Court reversed the district court’s decision, ruling in favor of the McFarlands and requiring Liberty Mutual to honor their Dwelling Coverage limits for the damages to the garage and bonus room. The case highlights that insurance companies bear the responsibility of clear policy language and should not deny claims based on vague terms.

Taking on a large insurance company can seem daunting, but McFarland v. Liberty shows that policyholders who understand their rights, read their policies carefully, and stand up for fair coverage can make a difference. Knowing the basics of policy interpretation—clear definitions, the power of ambiguity, and the value of reviewing the entire document—empowers homeowners to get the full coverage they deserve when they need it most.

For assistance navigating insurance disputes or appealing a denied claim, contact McFarland Ritter to ensure you receive the coverage you deserve.