Covered Claims

Here’s one for an insurance lawyer to answer – What if I sell my house to someone and in the disclosure documents I fail to list many of the problems with the house? What if the buyers of the house sue me for fraud and negligent misrepresentations? Does my homeowners policy protect me when I am sued and does the policy cover any judgment that may be taken against me?
This is exactly what happened in a 2005 Northern District case, the opinion is styled, Allstate Texas Lloyd’s v. Meyers.
The plaintiff’s purchased a home from the sellers who were covered under the insurer’s standard form homeowners’ policy. After the buyers moved into the home, they learned that the house, pool and deck had various defects and that the sellers had known of and intentionally concealed those defects from the buyers. The buyers sued the sellers asserting claims of fraud and negligent misrepresentations seeking mental anguish and economic damages associated with the cost of purchasing the defective home and for repairs to it. The insurer initiated this declaratory judgment action seeking a determination that it had no duty to defend or indemnify the sellers.
This Federal Court granted the insurer’s motion for summary judgment because the buyers’ claims were not covered by the insureds’ policy. The buyers’ allegations of the sellers’ intentional misrepresentations regarding the condition of the house did not constitute an “occurrence” under the standard Texas homeowner’s policy and, thus, were not covered by the homeowners’ policy. The resulting claimed damages were economic rather than “property damage” as defined by the policy and also were not covered. The court observed that even if the buyers’ petition included an alternative claim for negligence, summary judgment would still be appropriate because “the focus must be on the factual recitations” rather than on legal theories. Finally, the court re-affirmed that mental anguish claims fell outside the scope of coverage because they did not constitute “bodily injury” in Texas.

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