Insurance Law And Technicalities

Grand Prairie insurance attorneys need to know about technicalities and insurance policies. The Texas Supreme Court just issued an opinion in a case styled, Greene v. Farmers Insurance Exchange. This case deals with the Texas Anti-Technicality Statute found in the Texas Insurance Code, Section 862.054. Here is some of the information relevant to the lawsuit.
In this case a house that had been vacant for several months was damaged when fire spread to it from a neighboring property. The house was insured under a Texas homeowner’s policy containing a clause suspending dwelling coverage if the house was vacant for over sixty days. The homeowner had not purchased an available endorsement providing coverage for extended vacancies, and the insurer denied the homeowner’s claim, even though the vacancy was not related to the loss. On cross-motions for summary judgment, the trial court granted judgment for the homeowner. This was reversed by the Court of Appeals and upheld by the Texas Supreme Court.
Greene owned and lived in a house in Irving that she insured with Farmers Insurance Exchange. The policy Farmers issued to Greene was a Texas Homeowners-A Policy prescribed by the Texas Department of Insurance. The policy was effective from February 10, 2007 to February 10, 2008. On June 30, 2007, Greene moved into a retirement community. On July 5, 2007, she notified Farmers that she was going to sell her house and provided Farmers with change of address information. On November 14, 2007, fire from a neighboring house spread to Greene’s house and damaged it. Farmers denied Greene’s fire damage claim on the basis that the house had been vacant for more than sixty days. The denial prompted a lawsuit on Greene’s behalf.
Section I.A. of Farmers’ policy contains the relevant property coverage language:
SECTION I – PROPERTY COVERAGE COVERAGE A (DWELLING) We cover: 1. The dwelling on the residence premises shown on the declarations page including structures attached to the dwelling.
The policy defines “residence premises”:
9. “Residence Premises” means the residence premises shown on the declarations page. This includes the one or two family dwelling, including other structures, and grounds where an insured resides or intends to reside within 60 days after the effective date of this policy.
“Section I – Conditions” contains the policy language at issue:
13. Vacancy. If the insured moves from the dwelling and a substantial part of the personal property is removed from that dwelling, the dwelling will be considered vacant. Coverage that applies under Coverage A (Dwelling) will be suspended effective 60 days after the dwelling becomes vacant. This coverage will remain suspended during such vacancy.
Dwelling coverage for periods of vacancy lasting more than sixty days was available through a TDI- approved endorsement to the policy. Greene’s policy had several endorsements, but it did not have Endorsement TDP-011 that provided dwelling coverage during an extended vacancy. The parties stipulated that the vacancy of Greene’s house for more than sixty days was not causally related to the fire damage the house suffered.
Greene does not argue that the statute applies because she breached or violated her insurance policy in the usual sense of having violated a duty or obligation she assumed in the policy. Rather, she reasons that the statute applies because the Legislature’s use of “breach” in the statute encompasses the situation where a policy condition is “triggered”; when she vacated the house she triggered operation of the vacancy clause; so she breached the vacancy clause within the meaning of the statute. She further argues that defining “breach” to exclude “trigger” will lead to absurd results. The court disagreed with both arguments.
“Breach” of a contract occurs when a party fails to perform an act that it has contractually promised to perform. Similarly, a “violation” is “the contravention of a right or duty.” A “triggering” condition or event is one that brings something else into effect.
Greene’s first argument fails because the vacancy clause does not contain a promise by or obligation on behalf of Greene to occupy her house, thus her vacating the house was neither a breach nor a violation of the clause. The vacancy clause is substantively an agreement between the insured and Farmers that Farmers will continue insuring the house for sixty days after it no longer is her residence, when its being used as her residence is the underlying premise of the policy’s dwelling coverage. And re-defining”breach” by labeling her actions as “triggering” operation of the vacancy clause as a breach, when her actions in vacating the house were specifically contemplated by and addressed in the policy, finds no basis in the common meaning of the word “breach,” in a statutory definition, or in the context of section 862.054.
Her second argument likewise fails. She argues that refusing to include “trigger” in the definition of “breach” yields absurd results because that will allow insureds who breach policy provisions to recover their losses pursuant to section 862.054 while she will be precluded from recovering her loss even though she did not breach any policy provisions. While her argument has appeal, it does so only when the vacancy clause is considered apart from other parts of the policy, and that is not how policies are interpreted.
The Court concluded that the term “breach” as used in section 862.054 does not include a homeowner’s actions in vacating her premises and “triggering” the vacancy clause. Nor does excluding such actions from being a breach within the meaning of section 862.054 yield absurd results.