October 2026, by Aaron Jacob, Esq.
An application for a homeowners insurance policy in New York typically asks how many “families” or “units” the building contains, and the answer determines whether the insurer will write the policy, how much the premiums will cost, and which forms the policy will contain. For the owner of a two-family house, that single answer, “2,” can become the most scrutinized statement in the entire claims file.
This issue usually surfaces after a fire or other large loss. If an adjuster or investigator hired by your insurer inspects the house and finds, for example, a finished basement or a livable attic room, the insurer can take the position that the house was really a “three-family” dwelling and try to rescind the policy ab initio (i.e., from its inception), because there was a “material misrepresentation” in the policy application. This can happen even where the insured’s answer was based upon the official deed of the house identifying the property as a “one to two-family house”, and even after years of premiums were paid on the same policy.
However, while some third units may truly make a dwelling a “three-family house”, New York courts have refused to rescind policies or deny coverage where the supposed “third unit” did not truly transform the otherwise two-family house into a three-family house, such as where the “third unit” was part of a family’s own living space, or where the third unit did not contain the necessary living appliances to be deemed an independent living space.
An analysis of how New York courts decide these disputes is below, including how courts determine whether a space is a separate “unit,” how the wording of the application question can affect whether there was a misrepresentation at all, and what to confirm at the application stage so that a future claim does not turn on this question.
What Is a Material Misrepresentation?
An insurance application is made up of representations, or statements of fact submitted by the applicant to persuade the insurer to issue the policy. A mistake in these representations can be considered a “misrepresentation.”1 However, not all misrepresentations are equal. Under New York Insurance Law § 3105, a misrepresentation does not void a policy unless it is “material”, and “[n]o misrepresentation shall be deemed material unless knowledge by the insurer of the facts misrepresented would have led to a refusal by the insurer to make such contract.”2
If an insurer discovers a misrepresentation, it has several options. It can ignore the misrepresentation and continue insuring the property, it can choose to cancel the policy going forward, or it can try to rescind the policy, ab initio, meaning the policy is treated as void from its inception, as if it was never issued.3 After a loss occurs, cancelling the policy going forward will not help the insurer avoid the claim, so insurers must pursue the third option, rescission4, but to do so, an insurer will have to prove that the misrepresentation was “material.”
Critically, under New York law, and as often stressed by insurers, even an innocent misrepresentation can support rescission if that misrepresentation is “material”.5 That rule makes the remaining elements of the insurer’s burden all the more important.
A common misrepresentation that insurers argue is material is where an application states that a house is a “two-family”, but the insurer claims that the house is really a “three-family”. When an insurer rescinds a policy based on this misrepresentation, it generally must establish:
(1) that the application contained a misrepresentation, i.e., that the building actually contained more dwelling units than the application represented;
(2) that the misrepresentation was material, i.e., that the insurer would not have issued the same policy (or at the same premium) had it known the true facts; and
(3) that the insurer has not waived, and is not estopped from asserting, its right to rescind.
This article focuses on the first element: whether there was a misrepresentation at all, i.e., whether the house actually contained a third unit.
Of note, the same number-of-units question can also arise outside of rescission, specifically, in the “residence premises” policy provision. This is because many homeowners policies state that coverage is limited to the “residence premises”, which is usually defined as a one- or two-family dwelling where the insured resides.6 So, insurers may argue that a loss to a house with an undisclosed third unit falls outside of coverage because the property was not a “residence premises.”7 The analysis discussed below concerning how many units a property contains applies equally to a misrepresentation defense and a “residence premises” defense.
Was There a Misrepresentation? Counting the “Units” or “Families”
The First Department has explained that the term “family,” as used in the phrases “one family dwelling” or “two family dwelling,” refers to an entire self-contained dwelling unit, and not the number of people or households living in the building.8 As a result, a house with three self-contained apartments has been treated as a three-family dwelling even where the insureds claimed that all of the residents lived together as a single household,9 and a house with two self-contained units remains a two-family house even if multiple families live in one of the units.10
As the Southern District of New York explained, “a building with two separate units is no less a two-family dwelling if members of more than one family reside in one of the units than a building with three separate units becomes a two-family unit because of the happenstance that persons related to one another are spread over two of the units.”11 By the same logic, a house with three self-contained units is a three-family dwelling even if only one person lives there.
By the same token, an insurer’s mere characterization of a space as a “third dwelling unit” or an “illegal apartment” is not proof that it is a separate unit. For example, in Gottlieb v. Mountain Valley Indemnity Co., a 2026 decision, the First Department rejected a field investigator’s affidavit that called a basement “an illegal apartment” where he failed to explain how he reached that conclusion or state his qualifications to make it.12
Relatedly, the legal status of the property does not control the analysis in either direction. An insurer does not need to show that a third apartment was legal, as a building with three apartments has been found to be a three-family dwelling even though its certificate of occupancy and the City’s tax records described it as a legal two-family house.13 As such, a misrepresentation may still occur even if the insured represents the property on the application as it is described on a deed or New York city department documents.14
This is because, under New York law, determining the number of units within a property requires two considerations: (1) the “structural configuration” of the property; and (2) the “actual use” of the unit in question.15
The Structural Configuration Test
As stated, under New York law, “determining the number of units within a property requires consideration of its ‘structural configuration.’”16 This test takes into account whether each respective portion or area of the property has its own (i) kitchen, (ii) bathroom, and (iii) separate entrance.17 The second factor of this test is usually self-evident; however, the first and third factors are generally fact specific.
In this regard, courts look to whether the claimed unit has its own entryway that is not shared with, or reached only through, another unit.18 That entryway may be an exterior door or an interior door off a common hallway.19 A lock is not strictly required (at least one court found an interior door sufficient regardless of whether it could be locked),20 but a door with its own lock or key that cuts the space off from the rest of the house is strong evidence of a separate unit.21 Stated another way, the more freely the space can be reached from the other units, the weaker the insurer’s “separate entrance” argument.22
So, for example, a house with three exterior entrances leading to their respective floors would likely be considered “separate entrances.”23 As another example, a house with an immediate interior hallway with three individual doors that lead to the first floor, second floor, and basement, respectively, and the three floors are inaccessible from the others, would also likely be considered three separate entrances24, and the case is stronger still if each door has its own lock. Conversely, a house with just an interior staircase between the first floor and a basement, and the staircase cannot be accessed without use of the first-floor unit, may not be considered a separate entrance.25
The “kitchen” question deserves particular attention. To this end, in each of the leading appellate decisions where a “third unit” was found, the court described a separate kitchen.26 On this issue, insurers have prevailed in showing that an extra unit existed where the disputed area contained actual cooking facilities, such as a functioning range/oven, even when the insured described it as a mere “kitchenette.”27 Courts, however, have not treated the Housing Maintenance Code as controlling, and a space may still be found to be a separate unit based on its overall configuration.28
“Actual Use” or “Unifying Features”: When the Space Is Part of an Existing Unit
In addition to the required consideration of the structural configuration of a property, whether a dwelling is a two-family or three-family “is determined by actual use” of the property.29
For example, in Gottlieb, the insureds lived in one unit of a two-family house and their son’s family lived in the other, while the insurer claimed that the basement was a third independent unit.30 The First Department rejected the insurer’s position and affirmed the denial of its motion for summary judgment because, as the Court wrote: “‘unifying features’ exist which could suggest that the basement was merely a space used by plaintiffs and their son’s family, rather than a separate unit unto itself.”31 In this regard, the insurer’s own submissions indicated that the basement shared the same entrance as the other two units, and suggested that stairs led directly from the basement to one of the units. The Court also credited the insureds’ evidence that the basement was used to accommodate extended family and visitors, and that its kitchen was consistent with the practice of their community to facilitate dietary laws observed during Passover.32 As seen, even though the basement had some features of a separate unit (e.g., a kitchen), the actual use of the property showed that the basement was merely a space used by the families living in the upstairs portions of the house.
Similarly, in Walker v. Tighe, the Second Department held that, given the structural configuration of the insured’s property, the insurer failed to establish as a matter of law that the house was not a covered dwelling under the policy.33 It is the insurer’s burden to establish that there was a misrepresentation in the first place.
In practice, the facts that most often tie a disputed space to an existing unit include: (1) the absence of a stove, oven, or other cooking facilities; (2) the absence of a separate entrance, or access only through another unit or a shared entrance; (3) interior stairs or doors connecting the space to the rest of the house, particularly doors the rest of the household can freely pass through; (4) shared utilities and meters; (5) use of the space by the owner’s family, such as for storage, laundry, or a bathroom; and (6) occupancy by family members or occasional guests rather than a rent-paying tenant. These facts track the New York City Housing Maintenance Code, which defines an “apartment” as rooms arranged to be occupied as a unit separate from all other rooms in the dwelling, with lawful sanitary facilities and a lawful kitchen or kitchenette “for the exclusive use of the family residing in such unit.”34
Examples of how New York courts have applied these principles include:
(1) No coverage, where the premises contained three separate units, each with its own kitchen, bathroom, and separate entrance, even though the insureds claimed that all of the residents lived together as one household.35
(2) No coverage, where the insurer’s photographs and field adjuster’s affidavit showed three separate dwelling units, each with its own kitchen, bathroom, and separate entrance, and its underwriting rules showed it would not have issued the same policy for a three-family dwelling.36
(3) No coverage, where the building contained a third apartment, even though the certificate of occupancy and tax assessment records described it as a legal two-family house.37
(4) No coverage, where the insured admitted to the insurer’s investigator that the home was a three-family dwelling, and failed to explain why the premises had separate entrances.38
(5) No coverage, where the house had been divided into eleven numbered, deadbolted single rooms rented to unrelated occupants, the City issued violations for the illegal conversion, and the owners reported the property as rental income property on their tax returns.39
(6) Question of fact, where the basement contained a kitchen, but shared the same entrance as the other units, connected by stairs directly to one of the units, and was used to accommodate extended family members and visitors.40
(7) Question of fact, where, given the structural configuration of the property, the insurer failed to establish as a matter of law that the house was not a covered one-to-four-family dwelling.41
Key takeaway: If an insurer claims your house has a third unit, focus on the facts that tie the disputed space to an existing unit: no stove or oven, no separate entrance, interior access to the rest of the house, shared utilities, and use by family members or guests rather than a tenant. Document those facts with your own photographs before repairs or demolition begin, because the insurer’s adjuster will already be building the opposite record.
The Application Question: “Families,” “Units,” and Ambiguity
Whether an answer on an application was a misrepresentation also depends on how the question was actually asked. Under New York law, “[a]n answer to an ambiguous question on an application for insurance cannot be the basis of a claim of misrepresentation” where a reasonable person in the insured’s position could rationally have interpreted the question as the insured did.42 Applying that rule, federal courts held that an application asking for the number of “apartment units,” an undefined term, was ambiguous, and that a reasonable applicant could have understood it to exclude a furnished basement in which no one was residing and did not contain the necessary certificate to have someone living in it.43 The First Department has since relied on that reasoning to deny an insurer’s motion for summary judgment on the same “apartment units” question, where the application asked for the number of “apartment units”, but the related underwriting guidelines referred to “living units,” not apartment units.44
Policyholders should be aware, however, that the First Department has held that the question of “# Families” on a standard homeowners application is not ambiguous, and that it seeks the number of separate dwelling units in the building.45 The strength of an ambiguity argument therefore depends on the exact wording of the application, any instructions that accompanied it, and whether the insurer’s own documents define the term it is relying on.
Key takeaway: Obtain a copy of the actual application, and any instructions, that the insurer claims was misrepresented. The precise question asked (e.g., “families” versus “apartment units”) can matter as much as the layout of the house, and an undefined term in the insurer’s own form is construed against the insurer.
When applying for or renewing a homeowners policy, build these protections into the process before a loss occurs:
• Before applying, walk through the house with the structural test in mind, and identify any space (e.g., a basement, attic, or rear room) that has its own kitchen, bathroom, or separate entrance;
• Accurately describe every space that could be viewed as a separate unit, and ask your broker, in writing, how the insurer counts “families” or “units” on its application;
• Confirm that the declarations page reflects the correct number of families at every renewal;
• If you add a kitchen, bathroom, or separate entrance, or otherwise convert space in the house, notify your broker in writing and confirm the policy is updated; and
• Keep copies of the application, every renewal declarations page, your communications with your broker, and photographs of the layout of the house.
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Aboulafia Law Firm LLC works exclusively on behalf of policyholders and has decades of experience fighting insurance companies. Whether you are dealing with a residential or commercial property claim, we are ready to help you. If your insurer has rescinded your homeowners policy or denied your claim based on the number of units in your home, don’t navigate the complex claims process alone. For assistance on your insurance claim, please contact us.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
Aaron Jacob is a senior associate at Aboulafia Law Firm LLC. Mr. Jacob is a skilled litigation and coverage attorney and has extensive experience representing commercial and private clients involved in property damage and insurance coverage claims in complex state and federal court matters.
Mr. Jacob focuses his practice on advocating for policyholders in high-exposure property damage cases, insurance recovery claims, coverage disputes, construction-related claims, declaratory judgments, first & third-party claims, business interruption losses, indemnification, additional insured coverage, broker negligence, risk transfer, contractor/subcontractor liability, bad faith claims, contribution claims, breach of contract disputes, and general liability defense, as well as in litigating insurance coverage issues under several policy lines including homeowners, commercial liability, excess/umbrella, businessowners, cargo, freighting, and commercial auto policies.
Footnotes
1. N.Y. Ins. Law § 3105(a). ↩
2. N.Y. Ins. Law § 3105(b)(1); Lema v. Tower Ins. Co. of N.Y., 119 A.D.3d 657, 657–58 (2d Dept. 2014). ↩
3. Lema, 119 A.D.3d at 657–58 (“To establish the right to rescind an insurance policy, an insurer must show that its insured made a material misrepresentation of fact when he or she secured the policy.”) (quoting Interboro Ins. Co. v. Fatmir, 89 A.D.3d 993, 993–94 (2d Dept. 2011)). ↩
4. See, e.g., Dauria v. CastlePoint Ins. Co., 104 A.D.3d 406, 406 (1st Dept. 2013) (insurer rescinded homeowners policy after a fire at the insured premises); Lema, 119 A.D.3d at 658. ↩
5. Estiverne v. MIC Gen. Ins. Corp., 233 A.D.3d 844, 845, 223 N.Y.S.3d 705, 707 (2d Dept. 2024) (“‘[E]ven innocent misrepresentations, if material, are sufficient to allow an insurer to defeat recovery under the insurance contract.’”) (quoting Thandi v. Otsego Mut. Fire Ins. Co., 199 A.D.3d 849, 851 (2d Dept. 2021)). ↩
6. See, e.g., Multani v. Castlepoint Ins. Co., 221 A.D.3d 722, 724 (2d Dept. 2023); Almonte v. Castlepoint Ins. Co., 45 Misc. 3d 1218(A), 3 N.Y.S.3d 284 (Sup. Ct. N.Y. Cnty. 2014), aff’d, 140 A.D.3d 658 (1st Dept. 2016); Elshazly v. Castlepoint Ins. Co., 49 Misc. 3d 1216(A), 29 N.Y.S.3d 847, 2015 WL 7737920, at *3 (Sup. Ct. N.Y. Cnty. 2015). ↩
7. Dauria, 104 A.D.3d at 407 (building consisting of three dwelling units “does not fit within the policy definition of a covered ‘residence premises’”). ↩
8. Dauria, 104 A.D.3d at 407. ↩
9. Id. ↩
10. Hall v. Mountain Valley Indem. Co., No. 23-CV-2496 (LJL), 2024 WL 2943747, at *5 (S.D.N.Y. June 10, 2024) (the number of dwelling units in a building is determined by its structural configuration “and not by the number of families who reside in it”); see Dauria, 104 A.D.3d at 407. ↩
11. Hall, 2024 WL 2943747, at *5. ↩
12. Gottlieb v. Mountain Val. Indem. Co., 248 A.D.3d 687, 688 (1st Dept. 2026). ↩
13. Hermitage Ins. Co. v. LaFleur, 100 A.D.3d 426, 427 (1st Dept. 2012). ↩
14. Tower Ins. Co. of N.Y. v. Atuana, 127 A.D.3d 454, 454, 4 N.Y.S.3d 523 (1st Dept. 2015) (deed and city document indicating that the building was a two-family dwelling “were irrelevant”) (citing Hermitage, 100 A.D.3d at 427); Hall, 2024 WL 2943747, at *6. ↩
15. Gottlieb, 248 A.D.3d at 688 (citing Dauria, 104 A.D.3d at 407; Castlepoint Ins. Co. v. Jaipersaud, 127 A.D.3d 401, 401 (1st Dept. 2015)). ↩
16. Id. ↩
17. Id.; Dauria, 104 A.D.3d at 407; Lema, 119 A.D.3d at 658. ↩
18. Jaipersaud, 127 A.D.3d at 401; Gottlieb, 248 A.D.3d at 688. ↩
19. See Elshazly, 2015 WL 7737920, at *4. ↩
20. Id. (whether the interior door could be locked “is also of no moment”). ↩
21. See Canale v. Castlepoint Ins. Co., 64 Misc. 3d 1208(A), 2019 N.Y. Slip Op. 51073(U) (Sup. Ct. Bronx Cnty. 2019) (rooms outfitted with key-operated deadbolts). ↩
22. See Gottlieb, 248 A.D.3d at 688. ↩
23. See Dauria, 104 A.D.3d at 407. ↩
24. See Elshazly, 2015 WL 7737920, at *4 & n.5 (noting the insured’s concession that the second-floor door was “a normal interior bedroom door,” and holding that whether the second floor had an exterior entrance was “inconsequential”). ↩
25. See Gottlieb, 248 A.D.3d at 688. ↩
26. Dauria, 104 A.D.3d at 407; Lema, 119 A.D.3d at 658. ↩
27. Elshazly, 2015 WL 7737920, at *4. ↩
28. Id. ↩
29. Gottlieb, 248 A.D.3d at 688 (quoting Jaipersaud, 127 A.D.3d at 401). ↩
30. Id. ↩
31. Id. ↩
32. Id. (citing Mandelos v. Karavasidis, 86 N.Y.2d 767, 769 (1995)). ↩
33. Walker v. Tighe, 142 A.D.3d 549, 550–51 (2d Dept. 2016). ↩
34. N.Y.C. Admin. Code § 27-2004(a)(14); see Elshazly, 2015 WL 7737920, at *4 n.5 (record did not establish that the disputed area was arranged for the “exclusive use” of its occupants, as the Code definition requires). ↩
35. Dauria, 104 A.D.3d at 407. ↩
36. Lema, 119 A.D.3d at 658. ↩
37. Hermitage, 100 A.D.3d at 427. ↩
38. Jaipersaud, 127 A.D.3d at 401. ↩
39. Canale, 2019 N.Y. Slip Op. 51073(U). ↩
40. Gottlieb, 248 A.D.3d at 688. ↩
41. Walker, 142 A.D.3d at 550–51; see also Hall, 2024 WL 2943747, at *5 (describing Walker as rejecting the argument that the premises had more than four units when it was configured to have four units). ↩
42. Lee v. Union Mut. Fire Ins. Co., No. 20-CV-3191 (MKB), 2022 WL 3370086, at *6-7 (E.D.N.Y. Aug. 16, 2022), aff’d, 2023 WL 7014138 (2d Cir. 2023). ↩
43. Id. ↩
44. Alexi Home Design, Inc. v. Union Mut. Fire Ins. Co., 223 A.D.3d 449 (1st Dept. 2024). ↩
45. Hermitage, 100 A.D.3d at 427; Dauria, 104 A.D.3d at 407; Almonte, 140 A.D.3d at 659. ↩
