Homeowners Policy And Mortgagee

Insurance attorneys in Fort Worth will deal with homeowners policies at some point. With that in mind, a 2014 opinion from the Houston Court of Appeals [14th Dist.] is important to read. The style of the case is, SWE Homes, LP v. Wellington Insurance Company. Here is some of the relevant information.
There is very little dispute regarding the facts in this case. Edgar Sadberry purchased a residential property with a mortgage from SWE. He bought a Texas Dwelling Policy from Wellington covering the property and naming SWE as the mortgagee. The effective dates of the policy ran from August 11, 2010 until August 11, 2011. The policy covered losses from various hazards including fire. It further contained a Mortgage Clause, which reads in pertinent part as follows:
19. Mortgage Clause . . . .
b. We will pay for any covered loss of or damage to buildings or structures to the mortgagee shown on the declarations page as interests appear. . . .
d. If we deny your claim because of your acts or because you have failed to comply with the terms of this policy, the mortgagee has the right to receive loss payment if the mortgagee:
(1) at our request, pays any premiums due under this policy, if you have failed to do so.
(2) submits a signed, sworn statement of loss within 91 days after receiving notice from us of your failure to do so.
(3) has notified us of any change in ownership, occupancy or substantial change in risk known to the mortgagee.
All of the terms of this policy will then apply directly to the mortgagee. Failure of the mortgagee to comply with d.(1), d.(2) or d.(3) above shall void this policy as to the interest of the mortgagee.
As pertinent to this case, the policy also included as a condition a Vacancy Clause, which stated:
16. Vacancy. During the policy term, if an insured building is vacant for 60 consecutive days immediately before a loss, we will not be liable for a loss by the perils of fire and lightning or vandalism or malicious mischief. Coverage may be provided by endorsement to this policy.
Sadberry’s property was damaged in a fire apparently set by an unknown arsonist on December 23, 2010. Sadberry made a claim on his insurance policy, but after he admitted the property had been left vacant for over a year prior to the fire, Wellington denied the claim under the policy’s Vacancy Clause. SWE then filed a claim pursuant to the Mortgage Clause. When Wellington failed to respond, SWE filed suit. In its motion for summary judgment, Wellington argued that there was no “covered loss”–as required for a claim under the Mortgage Clause– because the property had been left vacant for over 60 consecutive days immediately before the loss occurred. In response, SWE argued that under the policy, coverage for the mortgagee could not be defeated by the mortgagor’s actions triggering the Vacancy Clause when SWE had no knowledge of those actions. The trial court granted Wellington’s motion and this appeal followed.
Wellingto insists that application of the Vacancy Clause of the policy–which states, among other things, that Wellington is not liable for a loss due to fire if the damaged building was vacant for 60 consecutive days immediately before the loss–means that there was no “covered loss” that would require proceeds be paid to SWE under the Mortgage Clause. The court did not agree with this interpretation of the policy, as it does not construe the document as a whole, harmonizing all of the provisions so that none are rendered meaningless. Unquestionably, the policy covers damage from fire. It is Wellington’s burden to prove an exclusion applicable to SWE. While under the Vacancy Clause, there is no coverage for Sadberry for fire damage when the property has remained vacant for the specified period, the clear import of the standard loss payable language in the policy means that the Vacancy Clause does not operate to defeat coverage for SWE as mortgagee, so long as SWE meets the required conditions, such as informing Wellington of any change in occupancy or substantial change in risk that was known to SWE. This is true because it was Sadberry’s actions as property owner that left the property vacant for the relevant time period and SWE had no knowledge of the vacancy.
Moreover, even if the interpretation proffered by Wellington and favored by the trial court were correct, the provisions barring coverage would be rendered void by operation of Texas Insurance Code section 862.055, which states:
§ 862.055. Fire Insurance: Interest of Mortgagee or Trustee (a) The interest of a mortgagee or trustee under a fire insurance contract covering property located in this state may not be invalidated by:
(1) an act or neglect of the mortgagor or owner of the property; or (2) the occurrence of a condition beyond the mortgagor’s or owner’s control.
(b) A provision of a contract that conflicts with Subsection (a) is void.
Again, the Wellington policy clearly covered fire as a hazard. If, as Wellington contends, certain language in the Mortgage and Vacancy clauses operates together to deny fire coverage to SWE as mortgagee based on Sadberry’s action in leaving the property vacant, such provisions would be rendered void by operation of section 862.055.