The Texas Supreme Court heard oral argument on January 7, 2014 in a case that will decide whether a policyholder’s vacancy constitutes a breach of a commercial property policy and potentially whether coverage is preserved by Texas’ anti-technicality statute. While the case involves relatively narrow facts, the issues to be decided may have broad application to Texas policyholders under a variety of policies.
In Greene v. Farmers Insurance Exchange, Cause No. 12-0867, Farmers Insurance Exchange (“Farmers”) issued a homeowner’s policy to Greene. The policy contained a standard vacancy provision, which provided that, should the insured vacate the property, coverage for damage to the dwelling would be suspended after sixty days. While still under the homeowner’s policy, Greene notified Farmers that she was moving to a retirement community and placing her house on the market for sale. Four months after Greene vacated her dwelling, a fire spread from a neighboring property, causing significant loss to Greene’s unoccupied home. Greene’s vacancy did not contribute to the loss in any way. Greene made a claim under the policy for the damages to her dwelling, and Farmers denied coverage due to the vacancy provision in the policy. Greene sued to recover benefits under the policy.
The trial court awarded Greene damages and attorney’s fees, concluding that, although Greene “violated” the vacancy clause, this did not render the policy void because the violation did not contribute to the loss. The Court of Appeals reversed, holding that Greene did not “violate” or “breach” the policy because the vacancy provision did not constitute a condition that could be violated or breached. Because there was not a violation, the causation requirement was not at issue, and the Court of Appeals denied Greene damages and fees under the policy. The Texas Supreme Court granted Greene’s petition for review.
In responding to Greene’s claim, the Court must first determine whether Greene’s vacancy constitutes a breach or violation of the homeowner’s insurance policy. If the Court decides that Greene’s vacancy was not a violation or breach of the policy, the rationale used to support such a decision could have broad implications for a variety of commercial insurance policies. If a vacancy clause in a commercial property policy is not capable of being breached, what other conditions, including the cooperation, voluntary payment, or subrogation provisions in commercial general liability policies are likewise not susceptible of being breached?
If the Court does find a breach or violation by Greene, the Court then may determine what effect, if any, the breach or violation has on Greene’s coverage under section 862.054 of the Texas Insurance Code, otherwise known as the anti-technicality statute. Under the statute, insurance companies must cover property loss caused by fire or the loss of personal property generally—even when the insured “breaches” or “violates” the insurance policy—unless the breach or violation contributes tocause the destruction. In other words, if the insured violated the policy but the violation did not cause the loss, the insurance company cannot void coverage or deny the claim based on the violation. However, the statute’s wording lends itself to various interpretations. There is an unsettled question about whether the causation requirement applies to real versus personal property loss (or both). If the Court holds that the anti-technicality statute applies to real property, then Greene may prevail because her vacancy did not contribute to cause the destruction.
Even if the Texas Supreme Court holds that the anti-technicality statute does not apply directly in Green v. Famers Insurance Exchange—either because Greene did not violate or breach her policy or because the statute only covers personal property—the Court may still consider the public policy underlying the anti-technicality statute as first articulated by the Court’s 1984 decision in Puckett v. U.S. Fire Insurance Co. In Puckett, the Court held that, as a matter of public policy in Texas, insurance companies cannot deny claims based on a technicality, unless that technicality contributed to cause the loss.
Puckett involved an aviation insurance policy that suspended coverage for planes with out-of-date annual inspections. When a plane crashed, U.S. Fire denied Puckett’s claim because the plane did not have its airworthiness certificate, as required under the policy. The Court held that allowing the insurance company to avoid liability when the breach of the policy in no way contributed to the loss was unconscionable. Although the insurance policy did not require a causal connection between the reason for a policy suspension and the loss or damage, the Texas Supreme Court held that Texas public policy did. In doing so, the Court effectively added a causation requirement to the aviation insurance policy—the insurer now had to show a connection between the breach of the policy and the loss or damage to deny coverage.
In Greene, the Texas Supreme Court may face several questions raised by Puckett. Does the public policy argument framed in Puckett extend to the facts in Greene? How does the public policy interest in freedom of contract compare to the public policy against denying coverage for a “technical” policy violation? What constitutes a “technicality”? Is a “technicality” different from the materiality standard otherwise used to judge the effect of a contractual “breach”? To the extent that these questions are addressed by the Court, Greene may be a case of significant interest to any Texas policyholder, whose coverage is challenged on the basis of an allegedly unfulfilled policy condition.