Exclusions In Homeowners Insurance Policies

Someone in Grand Prairie, Fort Worth, Arlington, Dallas, Mansfield, Cedar Hill, Duncanville, De Soto, Irving, or anywhere else in the Dallas / Fort Worth area would have a hard time understanding how to interpret “exclusions” in an insurance policy. It can be difficult even for an experienced Insurance Law Attorney.
Here is a case where an exclusion was at issue.
The style of the case is, Farmers Insurance Exchange v. Neal. This is a 2003, opinion issued by the Texarkana Court of Appeals. Here are some of the facts.
Between 1992 and 1996, Neal, the insured, purchased two race cars which he stored at his residence premises in a building used as a workshop and garage. In December 1996, the race cars were destroyed when the building burned, leaving nothing of residual salvage value. Shortly after the fire, the insured filed a claim under his homeowner’s policy. Farmers, the insurance company, paid the portion of the claim associated with the building and some personal property, but denied that portion of the claim associated with the race cars, taking the position that the race cars were expressly excluded from the scope of coverage as “motor or engine propelled vehicles or machines designed for movement on land, including attached machinery or equipment.” The policy, however, provided a limited exception to this exclusion for vehicles that were “not subject to motor vehicle registration” and “used for recreational purposes while located on the residence premises.” A lawsuit was filed where in it the insured sued for breach of contract and violations of the Texas Insurance Code. Because both sides agreed that the cars were not subject to the registration requirement, the coverage dispute centered on the interpretation of the “recreational use” element. The insured argued that the policy covered vehicles used for recreational purposes if they were located on the residence premises at the time of loss. The insurer contended that coverage existed only if recreational use of the vehicles occurred on the residence premises. The trial court held for the insured and this appeal followed.
In it’s holding, the Texarkana Court of Appeals affirmed the trial court ruling, saying that there was sufficient evidence to support the trial court’s finding of “recreational use.” While rejecting the insured’s proposed definition of “recreation,” the court noted that policy exceptions and limitations must be strictly construed in favor of the insured as long as the insured’s construction was not unreasonable, warranting reversal only if the evidence on the record demonstrated that the trial court’s judgment was “so against the great weight and preponderance of the evidence as to be clearly wrong and unjust.” In addressing the definition of recreation, the court noted that it was generally defined as “refreshment by means of some pastime, diversion, exercise, or the like,” or as “a pastime, diversion, exercise, or other resource affording relaxation and enjoyment.” While noting that there were many categories of activities that may be considered “recreational,” the court concluded that to adopt the insured’s definition of recreation as any activity capable of personal enjoyment “would undermine any purposeful exclusion of property as inevitably must be considered in the context of homeowners insurance coverage.” The court adopted the construction granting coverage because the evidence, considered as a whole, supported the trial court’s finding of “recreational use.” The court further held that the insured’s failure to report the purchase of the race cars did not constitute intentional fraud or misrepresentation.