Vacancy Clause

Insurance lawyers dealing with homeowners claims will eventually see a situation similar to the one in this San Antonio Court of Appeals opinion.  The case style is Lynn v. USAA Casualty Insurance Company and the opinion was issued in 1997.

Mr. and Mrs. Lynn’s country home was insured by USAA.  The house was completely destroyed by fire and USAA denied coverage based upon vacancy and arson.  The Lynns brought suit against USAA for breach of contract and breach of duty of good faith and fair dealing.  The trial court granted USAA’s Motion for Summary Judgment.  This San Antonio Court of Appeals confirmed the judgment.

Although there were some contents in the house six months before the fire, the testimony established that the house was vacant when it burned.  The Court of Appeals stated that the house was “without contents of substantial utility” due to lack of heating equipment, air conditioning, appliances, sleeping accommodations or efforts to preserve the contents for several months.  Therefore, the “vacancy” clause precluded recovery.  Furthermore, although the illegal acts (such as arson) of a co-insured do not bar recovery under an insurance policy, the “vacancy” clause, on the other hand, does not have a limitation for who “caused” or was aware of the “vacancy.”  The clause excludes coverage regardless of the innocent spouse’s knowledge of the “vacancy.”  Finally a bad faith claim is established by showing that the insurer had no reasonable basis for denying the claim or that the insurer failed to investigate.  In this case, USAA was justified in denying the claim under the “vacancy” clause.  Therefore, there was no bad faith.