Expert Commentary

First-Party Insurance and Anti-Technicality Statutes

Most, if not all, fire and first-party insurance policies will have certain conditions or provisions in the policies which require that the insured generally take some action. In a few cases, the policies may require that the insured refrain from taking some action. Examples include provisions regarding safety and security, fire prevention, and warranties that certain conduct will or will not be conducted on the premises.


Courts and Coverage
May 2015

In many actions, the insured will have failed to comply with the conditions, warranties, or provisions of the policy. The issue presented is whether the insured’s failure to comply with the conditions, warranties, or other provisions will serve as a bar to any recovery under the policy.

Purpose of Anti-Technicality Statutes

Many states have adopted anti-technicality statutes. The purpose of anti-technicality statutes is to prevent a breach by the insured of such condition, warranty, or other provision from operating as a bar to recovery if the breach did not contribute to the loss.

Texas has adopted such a statute. Section 862.054 of the Insurance Code provides that:

Unless the breach or violation contributed to cause the destruction of the property, a breach or violation by the insured of a warranty, condition, or provision of a fire insurance policy or contract of insurance on personal property, or of an application for the policy or contract:

(1)  does not render the policy or contract void; and

(2)  is not a defense to a suit for loss.

If the breach of the warranty or condition caused or contributed to the cause of the destruction of the property, then clearly the breach will be a violation of the policy, and the loss is not recoverable under the policy. On the other hand, if the breach of the warranty or condition did not in any way contribute or cause the loss, then such breach would not operate as a defense to the policy.

"Warranty, Condition, Provision" Defined

One issue that has arisen is the question of what is a "warranty, condition, or provision." This would seem to be somewhat straightforward. However, the courts have not treated it as so. In Greene v. Farmers Ins. Exch., 446 S.W.3d 761 (Tex. 2014), the Texas Supreme Court was presented with this very question. In this case, a homeowners insurance policy had been issued to the insured. Later, the insured went into a nursing facility, and the insured house was vacant for over 60 days when a fire occurred. The policy provided that the coverage would be "suspended effective 60 days after the dwelling becomes vacant. This coverage will remain suspended during such vacancy."

The house was destroyed by fire. However, the vacancy had nothing to do with causing or bringing about the fire. The fire resulted from a neighboring house catching fire and spreading to the insured house. The question was whether the provision regarding vacancy was a "warranty, condition, or provision" that would require that it be a cause or contributing cause to the fire.

The Texas Supreme Court held that the provision in the policy was not a warranty or condition. The court held that, typically, conditions and warranties require that the insured do something—if the insured fails to do so, coverage is not applicable. The court noted that, in Greene, the vacancy clause did not require that the insured be there but rather suspended coverage if the insured failed to occupy the house for 60 straight days.

The court also noted that the legislature had approved the homeowners insurance forms that were used in the Greene case. The court found that the more specific expression of public policy in the Texas Department of Insurance adoption of the homeowners form and the associated endorsements which could have provided coverage during a term of vacancy should be given deference over the more general expressions of public policy that were reflected in the anti-technicality statute. As a result, the court found that the vacancy clause did not require proof that the vacancy caused or somehow contributed to the loss.

On its face, the Greene case is not as broad as it seems. Most conditions and warranties are indeed not terms of coverage but rather require the insured to take some action. For example, if there is a condition in the policy that requires security, that is a requirement that the insured do something. It is not a term of coverage and would be a condition that would be covered by the anti-technicality statute. Second, many of the policy forms used to provide property coverage are not subject to the Department of Insurance regulations. As such, there would be no presumption that the policies reflect any type of legislative policy or legislative intent. Indeed, in most cases, both of these factors would be present.

Conclusion

In summary, when handling a property claim where there are conditions or warranties that are involved, it is important to determine whether there is an anti-technicality statute that is applicable. This inquiry must focus on whether the provision involved is a term of coverage as opposed to a condition or warranty. Second, it is important to look at and determine whether the policy form itself has been approved by the regulatory body or is one that has been adopted by the insurer. The breach of a warranty or condition may in some cases form the basis for a defense. However, in many cases, it may not. Therefore, care should be taken in reviewing the case to determine which category is applicable.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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