The Texas Supreme Court recently ruled that a vacancy clause remained enforceable by the insurance carrier to preclude coverage in a homeowner’s claim, even though the vacancy played no role in the cause of loss. In Greene v. Farmers Insurance Exchange,1 the Court found in favor of the insurance carrier with analysis that the case turned on the coverage purchased by the homeowner that Farmers had agreed to provide. The homeowner, the Court concluded, sought “to have [the Court] re-write the insurance policy under the guise of ‘construing’ it so Farmers provides coverage it did not agree to provide, and [the homeowner] receives coverage she did not contract for.”
Background Facts From The Lower Courts
A house in Irving, Texas, that had been vacant for several months was damaged when fire spread to it from a neighboring property. The house was insured under a homeowner’s insurance policy issued by Farmers Insurance Exchange containing a clause suspending dwelling coverage if the house was vacant for over 60 days.
Importantly, the homeowner had not purchased an available endorsement providing coverage for extended vacancies. The insurance carrier denied the homeowner’s claim, even though the vacancy was not related to the loss.
The policyholder sued the insurance carrier for breach of contract and won in the trial court. When the insurance carrier appealed, the Court of Appeals held that the vacancy clause must be applied as written and ruled in the insurance carrier’s favor. The case then reached the Texas Supreme Court.
Texas Supreme Court’s Decision
The insurance policy provided as follows:
9. “Residence Premises” means the residence premises shown on the declarations page. This includes the one or two family dwelling, including other structures, and grounds where an insured resides or intends to reside within 60 days after the effective date of this policy.
The policy also provided, in “Section I—Conditions,” the following:
13. Vacancy. If the insured moves 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. This coverage will remain suspended during such vacancy.
In its decision, the Court found that, when the insured vacated the dwelling and no longer resided there, full coverage remained in place for 60 days beyond the vacancy date, after which there was no coverage for the dwelling.
According to the Court, the vacancy clause addressed the scope of coverage and was not an exclusion because the clause did not limit the insurance carrier’s liability as to, or carve out, a particular type of loss but “effectively expand[ed] coverage” to encompass a 60 day period beyond the time the homeowner no longer resided in the dwelling. After that time, the Court said, there was no coverage for the dwelling. Finally, the Court found that the insurance carrier could rely on the vacancy clause to deny the claim even though the property’s being vacant had not contributed to the loss.
What Does This Mean For Me?
As always, as a policyholder, we encourage you to read your policy and know when you have coverage and when you don’t. As the Greene decision illustrates, policyholders must also know important endorsements available to expand coverages. If you encounter any significant change in your living conditions – such as vacating your property for an extended period of time – go back and re-evaluate your insurance coverage to make sure you maintain all the necessary coverage.
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