Vacancy/Occupancy Clauses in Property Insurance

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In Columbia Lloyds Ins. Co. v. Mao , 2011WL 1103814 (Tex. App. Fort Worth, Mar. 24, 2011 no pet.), a fire loss resulted in a trial court granting summary judgment in favor of the insured, finding that the building was not vacant for 60 consecutive days prior to the fire. Columbia Lloyds appealed the trial court’s decision. The case ultimately went to the Texas Supreme Court for a decision.

Since the policy did not define “vacant” or “vacancy,” the Appellate Court reviewed case law for a definition. The term vacant has been defined by case law as an entire abandonment, deprived of contents, empty — that is, without contents of substantial utility. The Supreme Court concluded that there was no clear evidence that the dwelling was vacant since the property was neither abandoned nor empty, and contained items of personal property. There were other issues in this case, but with respect to the vacancy issue, the Supreme Court concluded that a fact issue existed as to whether the dwelling was vacant.

Farbman Grp. v. Travelers Ins. Cos., No. 03-74975 (E.D. Mich. 2006) dealt with the issue of renovation. As noted earlier, later editions of the commercial property policy exempted buildings under construction and renovation from the vacancy provision. This case involved extensive water damage from the bursting of a frozen pipe. Travelers denied coverage, citing the lack of tenants in the building for at least 60 days prior to the damage. The insured countered that the building was under renovation, but Travelers contended that the walkway removal project in which the insured was involved could not be considered construction or renovation, but rather was merely some minor repairs to the exterior of the building.

Since renovation was not defined in the policy, the court looked to several dictionary definitions of the term. Essentially, the definitions for renovation referred to the words, renovate, restore to a former, better state, repairing or remodeling, and to renew materially, to create anew. Based on these definitions, the court concluded that the walkway removal project was a renovation. However, the court ruled in favor of Travelers because the record failed to disclose that any renovation efforts had actually been made and, therefore, did not establish that any such activities had occurred within the 60-day period prior to the water damage.

The issue of buildings under construction or renovation seems to come up fairly frequently in litigation, and the meaning of these terms sometimes generates debate as to their applicability to a given loss situation, as demonstrated by the Farbman Grp. case.

Conclusion

How the courts decide cases involving a vacancy or unoccupancy provision will depend on the applicable policy language and the circumstances...


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