In July 2007, Lawyane Greene notified Farmers Insurance Exchange that she was moving to a retirement community and selling her house. Four months later, a fire spread from a neighboring property to Greene’s property, causing her to suffer a fire loss. Greene made a claim under her Farmer’s insurance policy for the fire damage. Relying on the policy’s vacancy provision, Farmer’s denied coverage.
Greene sued Famers to recover damages under the insurance policy. Farmers argued that coverage was suspended under the policy’s vacancy clause and it “did not breach the policy by denying the claim for coverage that was suspended.” Farmers never contended that Greene breached or violated the policy by leaving the house vacant.
The vacancy provision states:
If the insured moved 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. The coverage will remain suspended during such vacancy.
At trial, Greene moved for summary judgment, arguing that Section 862.054 of the Texas Insurance Code prohibits denial of her claim absent a showing of prejudice. Section 862.054 provides:
Unless the breach or violation contributed to cause the destruction of the property, a breach or violation by the insured of a warranty, condition, or provision of a fire insurance policy or contract of insurance on personal property, or an application for the policy or contract: (1) does not render the policy or contract void; and (2) is not a defense to a suit for loss.
On March 17, 2011, the trial court determined that Farmers could not assert a vacancy defense without establishing that such vacancy contributed to the loss. The trial court’s order1 stated in part:
Greene’s…violation of the purported vacancy clause does not render the policy void and does not constitute a defense to … Greene’s suit for loss without … [Farmers] establishing that any purported vacancy clause violation … contributed to the loss at issue…
After the trial court awarded a final judgment in favor of Greene, Farmers appealed.
The Court of Appeals of Texas, Dallas noted that its determination involved two matters of construction: the policy and the statute under which Greene contended the prejudice requirement arose. The Court determined that the policy language was clear and not ambiguous as a matter of law, and summarized the trial court’s ruling: “[c]oncluding that [Farmers] breached the contract, the trial court held that Greene ‘violated’ the vacancy clause, and that the ‘violation’ does not render the policy void.”
The Court agreed with Farmers’ contention that the trial court erred in its interpretation of the policy. “The Policy clearly and unambiguously provides that vacancy suspends certain coverage after sixty days … The trial court concluded Greene breached or ‘violated’ the vacancy clause. But a breach of contract occurs when a party fails to perform an act that it has expressly or impliedly failed to perform.” Finding no such occurrence here, the Court found no violation or breach. “To conclude otherwise would be analogous to concluding that a homeowner with a policy excluding coverage for mold breaches the policy if the condition materializes.”
The Court determined that that Section 862.054 of the Texas Insurance Code did not apply because it requires a breach. Because there was no breach, the statute did not apply, and the Court reversed the trial court’s decision on the vacancy issue.