Bedford Internet Office Space, LLC v. Travelers Casualty Insurance
41 F. Supp. 3d 535
N.D. Tex.2014Background
- Bedford Internet Office Space, LLC owned two commercial buildings insured by Travelers under a Technology Office PAC policy (6/20/2011–6/20/2012).
- Buildings were leased to Bill Fletcher (Goodness Outreach Depot) effective June 1, 2011; Fletcher was preparing to "ramp up" operations but had not fully opened when theft/vandalism was discovered on Sept. 7, 2011.
- Policy contained a vacancy exclusion: no coverage for vandalism/theft if the building had been "vacant" for more than 60 consecutive days before the loss; "vacant" required <31% of square footage rented and used for "customary operations."
- Evidence: owner O’Leary admitted no business operated there since ~2008, no water/electric since 2008, intermittent access for storage/mail; police and appraisal records characterized the property as vacant.
- Travelers denied the claim (Jan. 3, 2012) relying on the vacancy exclusion; plaintiff sued for breach of contract, Texas Insurance Code violations, bad faith, and negligence; parties filed cross-motions for summary judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurer must prove exact date of loss to invoke vacancy exclusion | Plaintiff: insurer cannot meet burden because exact date of damage is unknown | Travelers: exact date need not be known if insurer proves property was vacant during any relevant 60-day period | Denied plaintiff relief — insurer produced competent evidence showing vacancy during any relevant 60-day period |
| Whether buildings were "vacant" (meaning of "customary operations") | Plaintiff: lease and intermittent presence show not vacant | Travelers: neither owner nor lessee conducted customary business operations; mere access or preparation is insufficient | Buildings were vacant as a matter of law; insurer entitled to summary judgment on coverage defense |
| Extra-contractual claims (bad faith / Insurance Code) — adequacy of investigation | Plaintiff: insurer failed to interview lessee and thus investigation was deficient | Travelers: vacancy exclusion presented a bona fide controversy and investigation gave a reasonable basis to deny | No genuine fact issue of bad faith; insurer had a reasonable basis to deny — summary judgment for insurer |
| Negligence and exemplary damages erroneously pled against insurer | Plaintiff requested dismissal of those claims against Travelers | Travelers moved to dismiss those claims | Court recommended dismissal with prejudice of negligence/exemplary claims against Travelers |
Key Cases Cited
- Central Mutual Ins. Co. v. KPE Firstplace Land, LLC, 271 S.W.3d 454 (Tex. App. 2008) (vacancy exclusion analysis when date of loss unknown)
- Oakdale Mall Assocs. v. Cincinnati Ins. Co., 702 F.3d 1119 (8th Cir. 2013) (lease alone does not defeat vacancy exclusion)
- Keren Habinyon Hachudosh D’Rabeinu Yoel of Satmar BP v. Philadelphia Indem. Ins. Co., 462 Fed.Appx. 70 (2d Cir. 2012) (intermittent use and storage insufficient to avoid vacancy exclusion)
- Saiz v. Charter Oak Fire Ins. Co., 299 Fed.Appx. 836 (10th Cir. 2008) (property not in "customary operations" despite maintenance and utility payments)
- Sorema N. Am. Reins. Co. v. Johnson, 258 Ga. App. 304 (Ga. Ct. App. 2002) (storage use does not negate vacancy)