Texas Supreme Court Upholds Denial of Coverage Based on Vacancy Provision
By J. Richard Harmon, Jo Allison (Jody) Stasney • Sep 2, 2014
Greene v. Farmers Ins. Exch., No. 12-0867
(Tex. Aug. 29, 2014)
Today the Texas Supreme Court decided a case that will undoubtedly affect future insurance litigation concerning vacancy clauses in property policies, the anti-technicality statute, and the showing of prejudice. Broadly speaking, the case could mean that, if a provision in a policy on which the insurer denies coverage does not condition performance by the insured, the anti-technicality statute is inapplicable and prejudice is not raised, because there has been no breach.
In Greene, Farmers denied coverage to Greene for fire damage to Greene's home pursuant to a provision in the conditions of its homeowner's policy suspending coverage for damage to the dwelling sixty days after the dwelling becomes vacant. The vacancy was not related to the loss. The trial court granted judgment for Greene who argued that 1) under Texas Insurance Code section 862.054 ("the anti-technicality statute"), the vacancy provision could not be raised as a defense; 2) Farmers could not deny based on the vacancy provision because it could not show prejudice; and 3) public policy precluded Farmers from denying coverage. The Dallas Court of Appeals reversed and rendered judgment for Farmers. The Texas Supreme Court affirmed the court of appeals decision.
At the Texas Supreme Court, Greene argued that a "breach or violation by the insured of a condition" in the anti-technicality statute encompasses the situation where a policy condition is "triggered". In other words, Greene's vacating the residence "triggered" the vacancy clause, breaching it within the meaning of the statute. The court disagreed, holding that, because the vacancy clause does not constitute a promise to occupy the house, vacating it was not a breach or violation of the vacancy clause. The court reasoned that the vacancy clause is essentially an agreement that the insurer will provide coverage for 60 days after the residence is vacated, and effectively is an expansion of the coverage that cannot be breached by the insured. The court did not rule on the appeals court's holding that the anti-technicality statute only applies to personal property. Thus, the appeals court holding on this issue may still be viable.
Next, relying on Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691 (Tex. 1994) and PAJ, Inc. v. The Hanover Ins. Co., 243 S.W.3d 630 (Tex. 2008), Greene argued that Farmers could not rely on the vacancy clause when the vacancy did not prejudice Farmers. Expanding on the analysis above, the court held Greene did not breach the policy. The parties had simply agreed on the effect of coverage if she vacated the home. The court held that for these reasons, the issue of prejudice was not even raised.
Greene finally argued that the public policy underlying the anti-technicality statute and in Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936 (Tex. 1984), precluded Farmer's denial based on the vacancy condition. The Puckett court stated that "[i]t would be against public policy to allow the insurance company … to avoid liability by way of a breach that amounts to nothing more than a technicality." Puckett, 678 S.W.2d at 938. Because of the vacancy clause relates to the scope of coverage, it is a material provision in the policy and cannot properly be characterized as a mere "technicality."