In the recent case, SWE Homes, LP v. Wellington Insurance Company,1 the question presented concerned whether a standard mortgage clause in a residential insurance policy provided coverage to the mortgagee for a fire loss when the policy also contained a vacancy clause and the mortgagor had left the property vacant. In remanding the case to the trial court for further proceedings, the Texas Court of Appeals for the 14th District reversed the trial court’s summary judgment in the insurance carrier’s favor.
BACKGROUND
Edgar Sadberry, the mortgagor, purchased the property in question with a mortgage from SWE Homes, LP. Sadberry insured the property through Wellington and named SWE Homes as the mortgagee.
If Wellington denied the Sadberry’s claim because Sadberry failed to comply with policy terms, the policy contained a Mortgage Clause that allowed SWE Homes to receive the loss payment if SWE Homes (1) paid the policy premiums, (2) submitted a timely Proof Of Loss, and (3) notifies Wellington of any change in ownership, occupancy, or change in risk known to SWE Homes. The other pertinent clause for this case, the Vacancy Clause, excluded coverage for a fire loss if the property was vacant for 60 consecutive days immediately prior to the loss.
THE LOSS
Sadberry submitted a claim for a fire loss that occurred on December 23, 2010. Wellington denied the claim under the policy’s Vacancy Clause because Sadberry admitted the property was vacant for over a year prior to the fire.
SWE Homes then filed a claim under the Mortgage Clause. SWE Homes filed suit because Wellington failed to respond to SWE Homes’ claim.
TRIAL COURT DECISION
Wellington filed for summary judgment against SWE Homes, arguing that the Vacancy Clause prevented a “covered loss,” which then rendered the Mortgage Clause inoperable. Although SWE Homes argued that SWE Homes still maintained a claim because SWE Homes was not aware of Sadberry’s actions to defeat coverage, the trial court granted summary judgment in Wellington’s favor.
APPELLATE COURT DECISION
In finding that the policy contained “the standard mortgage clause,” the appellate court followed the rule that these standard mortgage clauses allow the mortgagee to recover even when the insured cannot. The appellate court was aided in its decision when Wellington sought to interpret the policy in a manner in which the Vacancy Clause preempted the Mortgage Clause coverage. In rejecting Wellington’s interpretation, the appellate court stated that the policy document must be construed as a whole, harmonizing all of the clauses so that none are rendered meaningless. The only manner in which to harmonize and give effect to all policy provisions, the appellate court found, was to overrule Wellington’s summary judgment and remand the case for further proceedings in the trial court.
WHAT DOES THIS MEAN FOR ME?
I cannot keep up with the number of times that my colleagues and I tell our clients to “read the policy.” This SWE Homes case is another example in which the policyholder’s rights were upheld because the entire policy was construed as a whole, harmonizing all of the clauses. If you have a claim denied under some particular exclusion, have a policyholder professional review the entire policy to make sure the carrier properly applied the exclusion in relation to the policy as a whole.
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