Bob Greene, as Next Friend of Lewayne Greene v. Farmers Insurance Exchange

GREENE, Bob as Next Friend of

LeWayne Greene, Petitioner, EXCHANGE,

FARMERS INSURANCE

Respondent.

No. 12-0867.

Supreme Texas.

Argued Jan. 2014. Aug.

Decided

Rehearing Denied Nov. Pruessner, & Higier, M. Allen

David Lautin, PC, Addison, TX, Amicus Curi- for Mockingbird ae Ventures. Hopkinson, Mary F. Kel- Gregory Keith TX, ler, PC, Austin, for Amicus Winstead Casualty Insurers Associ- Property Curiae ation of America. Kizzia, Fox Kizzia & Bradley

D. Brown TX, PLLC, Dallas, Mi- Johnson William II, Stacy Boll chael Juneau & Ucherek Ucherek, Addison, TX, for Petitioner Bob Greene, Lewayne as Next Friend of Greene. Bell, Springer, Steven A.

Rebecca E. Vitullo, LLP, Stephen Smith & Sharp Fee Good, P.C., Dallas, G. Macdonald Devin TX, Insurance Respondent Farmers Exchange. opinion

Justice JOHNSON delivered Court, Justice which Chief GREEN, HECHT, Justice Justice GUZMAN, LEHRMANN, Justice Justice DEVINE, joined. and Justice BROWN house that had been va- this case a damaged for several months was cant fire spread neighboring when from a Greene sued Farmers for breaching its property. The house was insured under a contractual obligation to pay under the Texas homeowner’s policy containing a policy, as well as for extra-contractual clause suspending dwelling coverage if the damages.2 sixty days.

house was vacant for over Section I.A. of Farmers’ con homeowner had not purchased an available tains the relevant property coverage3 lan endorsement providing coverage for ex- guage: vacancies, tended and the insurer denied SECTION I PROPERTY COVERAGE claim, the homeowner’s even though the vacancy (DWELLING) was not related to the COVERAGE A loss. On summary cross-motions for judgment, the We cover: trial court granted judgment for the home- 1. The dwelling on the residence owner. The court of appeals held that the premises shown on the declarations

vacancy provision applied must be accord- page including structures attached to ing to its terms and reversed. the dwelling.

We affirm. The defines premises”: “residence 9. “Residence Premises” means the Background I. premises residence shown on the decla- LaWayne Greene owned and lived in a page. rations This includes the one or in Irving house that she insured with family two dwelling, including other Farmers Exchange. Insurance The policy structures, grounds where an in- Farmers issued to Greene was a Texas sured resides or intends to reside within (HOA)form Policy Homeowners-A pre- days after the effective date of this Department scribed the Texas of Insur- policy. (TDI).1 ance The policy was effective “Section I—Conditions” contains the policy 10, from February 10, February language at issue: 30, 2007, 2008. On June Greene moved Vacancy. If the insured moves from 5, into a retirement community. July On the dwelling and a substantial part of 2007, she notified that Farmers she was personal property is removed from going to sell her provided house and dwelling, that the dwelling will be con- change Farmers with of address informa- sidered Coverage vacant. applies 14, 2007, tion. On November fire from a under Coverage (Dwelling) A will be neighboring house spread to Greene’s suspended days effective 60 after the damaged house and it. Farmers denied dwelling becomes vacant. This coverage Greene’s damage fire claim on the basis will remain suspended during such va- that the house had been vacant for more cancy. sixty days. than The prompted denial lawsuit on Greene’s behalf by Bob Greene Dwelling coverage periods for of vacancy Greene). as her next friend (collectively, lasting more sixty days than was available Dep’t dealing, fair misrepresentations Policy- Ins., 1. Tex. and vio- of Tex. Homeowners (2002), A http://ic.iiat.org/docs/Texas_ lations of the Deceptive Form Insurance Code and forms/HO/HOA.pdf. Trade Practices Act. 2. Greene damages claimed extra-contractual provides personal property Section I.B. cov- negligence, negligent misrepresentations, for erage provides liability and Section II cover- nondisclosure, fraudulent breach of construc- age. trust, duty good tive breach of the faith and and ren appeals reversed The court endorsement TDI-approved

through a Farmers. It held that judgment dered had several Greene’s vacancy unambiguously clause En- because the endorsements, not have but did sixty coverage after suspended dwelling provided dwell- TDP-011 dorsement “describing vacancy vacancy, vacancy.4 days during an extended ing coverage or violation in terms of a breach Ins., exclusion See Bd. of EndoRSement Tex. State 1992). Exch. v. nonsequitur.” Farmers Ins. parties The is a (July TDP-011 No. Greene, (Tex.App. Greene’s vacancy stipulated appeals pet. granted). sixty days was not Dallas for more than house not re concluded that Farmers was damage fee court causally related to the that the con quired to establish suffered. house in order to assert tributed to cause the loss summary judg- for parties moved Both (1) vacancy clause as a defense because of contract claim. ment as to the breach apply, not anti-technicality statute did motion, asserted, part, in her Greene (2) require decisions did not this Court’s § 862.054 Insurance Code that Texas (3) policy did showing, public and such the anti-techni- (commonly referred to as not it. Id. at 285. require statute) from precluded Farmers cality vacancy clause as a defense. raising the argues appeals that the court of Greene that if the anti-tech- She further asserted reaching foregoing in each of the erred both this nicality apply, statute did not in urges also that conclusions. She public policy and Texas precedent Court’s ap- the court of event we do not reverse the claim denying Farmers from precluded remand the peals’ judgment, we should did not because the and direct it to appeals case to the court of causally nor was it related Farmers her ar- clarify judgment. examine its We Greene’s loss. in turn. guments motion, Farmers’ The trial court denied II. Discussion claims, Greene’s, “all granted severed causes, which are not actions or defenses § A. Texas Insurance 862.054 Code disposed by judgment on Plaintiffs provides: Section 862.054 action,”5 breach-of-contract cause of by Insured; Fire Insurance: Breach for Greene on the judgment rendered final Property Coverage. Personal appealed the rul- contract claim. Farmers claim; or violation contribut- of contract Unless the breach ing on the breach prop- the destruction of the Greene the dismissal of her ed to cause appeal did not or the insured erty, a breach violation other claims. judgment provided that: contends that Farmers should be 5. The trial court’s Greene precluded raising any arguments about from having agreed parties to severance of premium charges, policies, endorse- form defenses, remaining all claims and so that a they were not mentioned in ments because Judgment appealable can and is final appeals. the court We the trial court or original in cause. HEREBY entered disagree. that We do not consider issues claims, causes, All actions or defenses below, par- were not in the courts but raised by judgment disposed which are arguments free to construct new ties are of ac- Plaintiff’s breach-of-contract cause support properly of issues before the Court. herein the severance as described Plunkett, 552, tion or See Nall v. 555-56 disposed of and are dis- (Tex.2013) are otherwise (holding decide that we do not court). presented in the trial missed. issues not condition, or in a with warranty, provision of a statute care and every word phrase or was used policy purpose a fire insurance or contract of with a mind. Id. property, or of an personal insurance on

application or contract: of a “Breach” contract occurs when a (1) does not render the or con- party perform fails act it has void;

tract contractually promised perform. See Dictionary (2) (10th ed.2014) to a loss. is not a defense suit for Black’s Law “ (defining “breach of as a contract” [viola- § 862.054. Tex. Ins.Code tion of a obligation by contractual failing to argue Greene does perform promise”); one’s own see also applies statute she breached or because 839, U.S. v. Corp., Winstar 518 U.S. 909- violated her usual insurance 10, (1996) S.Ct. L.Ed.2d 964 having duty sense of violated a- obli party (finding perform unable to its Rather, she gation assumed promise breach); liable for Orix Cap. applies she reasons that statute be Mkts., Bank, L.L.C. v. Wash. Mut. use of Legislature’s cause “breach” (Tex.App.-Dallas no encompasses the statute the situation pet.); Restatement (Second) of Contracts where “triggered”; condition 235(2) (1981). § Similarly, a “violation” is triggered when she vacated the house she “the contravention of right duty.” a or clause; operation vacancy of the she so Dictionary (10th 1800 Black’s Law vacancy breached the clause within the ed.2014). A “triggering” condition or meaning of the statute. See id. She fur brings event is one that something else argues defining ex ther “breach” to (defining into effect. See id. at “trig- “trigger” clude lead to will absurd results. gering condition” as circumstance that “[a] disagree arguments. We with both must before a legal ap- exist doctrine plies”). examining the lan statutory correct, to see if is guage Greene we follow because, argument Greene’s first fails familiar principles. We review issues of noted, appeals the of vacancy court the novo, statutory construction de San City of clause not contain promise by does a or Boerne, City Antonio v. 111 S.W.3d obligation on behalf of occupy Greene to (Tex.2003), primary with our objective house, her thus her vacating the house was being give to the Legislature’s effect neither a nor a violation of the intent. Lottery Tex. Comm’n v. First Greene, clause. See DeQueen, State Bank vacancy substantively The clause is an (Tex.2010). rely plain We the agreement between the and Farm- insured meaning of as expressing legisla the text ers insuring that Farmers will continue the intent meaning tive unless different is sixty days house for no longer after it is supplied by legislative ap definition or is residence, her when being its used as her context, from parent plain or the the underlying premise residence is of the meaning dwelling leads to absurd results. Id. We policy’s coverage.6 And re-defin- presume Legislature language ing by labeling selected “breach” her actions as Inserting appropriate language, property, longer personal thereby definition her no re- Coverage (Dwelling) I.A. as related siding under the in it terms. She does says facts before that the us covers not contend that she intended to ever reside dwelling where an insured resides. again. there stipulated Greene that she from had moved part house and removed a substantial ordinary, every according to the vacancy terpreted of the operation

“triggering” general its words to breach, day meaning actions in when her as a clause specifically public. con- house were vacating the policy, by and addressed

templated provides to Greene The issued meaning of common basis finds no dwelling covers “[t]he that the insurance “breach,” statutory defini- in a the word ” premises shown on the on the residence tion, of section 862.054. in the context “residence and defines page, declarations likewise fails. argument Her second dwelling and struc- to be the premises” “trig- refusing to include argues She dwelling “where an attached to the tures yields of “breach” definition ger” in the reside within or intends to insured resides in- that will allow because absurd results date of this days after the effective to re- policy provisions who breach sureds added). vacancy (Emphasis policy.” to section pursuant their losses cover part Section I-Conditions clause is precluded be from she will 862.054 while the clause is read policy, but when of the though even she did her loss recovering of Section together with While any policy provisions. not breach Coverage (Dwelling), I.A.-Property only it does so appeal, has argument her about substantively agreement is clause clause is considered when the instance happens given particular what parts policy, from other apart “resides” in longer no in which the insured interpreted. are policies not how is dwelling because it is vacant: the insured ‘agreement that when the insured an insurance it is an interpreting When longer resides dwelling and no parts, all its read all vacates we consider contract removing premise under- all of there —thus give effect to together, of them Co., dwelling HO-A that the lying Ins. v. Aetna them. Forbau Life (Tex.1994). coverage full 132, Ordinarily we the insured’s residence —then 133 S.W.2d beyond the place sixty days remains in for parties the intent of the seek to ascertain date, cov- after which there is no language vacancy of the con expressed as dwelling but the remainder Policy erage the is a stan for the Id. But here tract. ' in force. The TDI. The of the insurance remains prescribed by form dard that the va- regulat appeals TDI court of determined charged has with Legislature insurance, an exclusion be- cancy task that clause functions as the business of a ing (va- specific it a condition requires approve “excepts it to forms cause expressly Greene, coverage.” from 376 companies writing cancy) by used insurance (citing at 282 insurance. Tex. S.W.3d property residential Black’s Law Dictio- Ins. ed.2009) nary (9th 2301.003(b)(2), 31.002(1), and 17 §§ 563 Williston Code (4th ed.1992) 2301.006(a). (explain- § 49.11 Legislature’s to the Pursuant Contracts or exclusion limits mandate, ing exception the form Farm that an prescribed TDI of loss liability types TDI has also or carves out certain ers for Greene’s used coverage apply)); does not see form endorsement that home to which approved a Co., PAJ, coverage Inc. v. Hanover Ins. purchase provide owners can (“Exclusions (Tex.2008) and condi- vacancies. we in 635 during extended When are in effect two sides of the same form the intent of the tions terpret policies, such coin; if in- coverage avoid the they because did exclusions parties is not what counts something, and conditions avoid the Fiess v. State sured does write contract. (Tex. does some- coverage unless an insured Lloyds, Farm S.W.3d 2006). actuality Rather, But the clause in ad- thing.”). is in policy language the coverage vacating instead of her scope the house as dresses does not result, is because being an exclusion. That an absurd work Farmers argues liability limit Farmers’ clause does not as that section applies only 862.054 to person- out, to, particular type or carve of loss. property al insurance. court of ap- Rather, effectively expands coverage to peals argument considered the latter beyond encompass sixty-day period concluded that Farmers was correct. longer Greene, the homeowner no resides in time at 283. But the ap- dwelling, premise and the HO-A peals expressly court noted that its deci- is that it in which property covers depend upon sion “does not whether the insured resides or intends to reside. statutory language pertains only to fire insurance on personal property or to all extending recognize dwelling We types property by covered fire insur- days coverage only sixty vacancy for after conclusion, ance.” Because of our we setting an might occurs seem to be arbi- question do address the of whether line, trary bright arbitrary but it is no less 862.054 applies section real property. specified than lines established E.g., Gonzalez, Valley Baptist Med. Ctr. v. coverage begins on which and ends. dates (Tex.2000) curiam) (per sixty day provision And the cuts both (“Under II, article section of the Texas been ways: there would have for Constitution, jurisdiction courts no have loss if fifty-nine the fire had occurred advisory opinions.”). issue occurred, days vacancy regardless after longer fact that Greene no resided Prejudice B. how vacancy there. We fail to see specifying clause’s the times which Citing Group Hernandez Gulf did risk of Lloyds, (Tex.1994), Farmers not insure the loss for 875 S.W.2d 691 dwelling yields any more of an absurd Greene next argues Farmers policy’s specifying result than does the rely cannot on the clause to deny beginning for the ending dates claim property’s being her when the va a whole. If as we were to re-formulate the did not prejudice cant Farmers. Ultimate of “breach” Greene asks us to definition her ly, argument fails. do, legislative we be usurping would applied preju This Court has re-making the contract to

prerogative times in dice several the re parties agreed. which We decline to past. Corp. cent See Lennar v. Markel either. do Co., (Tex.2013); Am. Ins. 413 750 S.W.3d term We conclude that the “breach” as Co., Specialty Indus. v. XL Corp. Fin. Ins. used section 862.054 does include a (Tex.2009); 285 S.W.3d 877 Prodigy vacating prem- actions in her homeowner’s Corp. Agric. Excess & Sur Commc’ns and “triggering” ises clause. Co., (Tex.2009); plus Ins. 288 374 S.W.3d excluding Nor does such actions from be- PAJ, 636; Hernandez, 243 at S.W.3d 875 meaning a breach within ing section at those S.W.2d 693. We rooted decisions yield The court 862.054 absurd results. law, focusing on the principle in contract correctly determined that section appeals party one is from performing that excused apply 862.054 does not to Greene’s claim. only party a contract if the other under maintaining

In addition to that Greene’s commits a material breach. See Lennar 756; Corp., of the Fin. policy actions were not a breach 413 S.W.3d at Indus. 879; Corp., Prodigy, 285 contemplated by as section S.W.3d at PAJ, 382; 636; 862.054 and that to consider her at at failing S.W.3d S.W.3d guise under the of “constru- noted surance Hernandez, at 693. We 875 S.W.2d coverage it did ing” provides it so Farmers breach materiality of an insured’s that the factors, receives agree provide, and Greene including not by several is determined coverage she did not contract for. deprived the breach to which the extent asserts that this case cannot it reason concurrence benefit that of the the insurer meaningfully distinguished from per full be anticipated from ably could have Lennar, Hernandez, Prodigy, analyses and results by the insured. formance PAJ, Hernandez, and that those cases 2; Corp., n. also Lennar at 693 see S.W.2d policy provisions to the 753; 285 should be limited Corp., Fin. Indus. at 413 S.W.3d (Boyd, 879; at in them. 446 S.W.3d 761 at issue Prodigy, S.W.3d S.W.3d J., disagree. concurring). If the in We 375; at 632. anticipated reasonably its receives surer applied In Hernandez we the contract breach, the despite the insured’s benefit com- only party when one principle immaterial, is not the insurer party’s the other mits a material breach is the insurer is not excused prejudiced, and at 692. performance excused. 875 S.W.2d Hernandez, See, e.g., performance. from for our deci- principle That was basis (determining in at 693-94 PAJ, Prodigy, and Lennar. To sions breach of a settlement-without-con sured’s pre- materiality in the contexts determine because insurer sent clause was immaterial cases we considered the sented those position in the same would remained parties to which the we referred to extent complied occupied have had the insured nonbreaching parties-the insurers- Corp., Lennar provision); with the of the benefit deprived would have been (same). at 756 they reasonably anticipat- could have full or whether the performance, extent to which Farmers ed from Analyzing the comply did not reasonably obligations the insureds deprived of the benefit it bargained- of the parts from Greene’s full with were material anticipated could have exchange. for In all four cases we con- performance materiality of her fail- —the the insurers received fully obligations her under cluded either that perform ure to analyzing they expected her fail- from the con- policy begins with benefits — words, tracts, terms at issue analyzing perform; ure to other ex- part bargained-for not breach were not a her breach. But Greene did in- by moving changes between the insurers and obligations her under the above, out home. As discussed sureds. of her considering policy’s parts all the read- recog- example, we it is clear that

ing together, them con- nized that in the context of a the effect of parties simply agreed on taining settlement-without-consent vacating Greene’s her house. Because she clause, an insured’s breach —settlement obligations did not breach her under the extin- Without the insurer’s consent—can clause, the policy, including vacancy its subrogation right depriv- a valuable guish question materiality of of a breach and its ing anticipated the insurer of an benefit subsidiary of are not issue But policy. the 875 S.W.2d at 693. under raised. case, in that the insurer had not incurred breach, regard with to its subro- any At is not financial loss bottom this case about gation rights though even the insured set- coverage pur- it is about what Greene of the insurer. Id. at agreed provide. to tled without consent chased and Farmers not the in- For that reason the insurer was Greene seeks to have us re-write 694. Policy C. Public obligation perform. from its excused to Similarly, in an was not Id. PAJ insurer Last, Greene maintains that both by to prejudiced the insured’s failure noti- public the policy underlying the anti-tech practi- of a fy the insurer claim “as soon as nicality statute and our decision in Puckett required by cable” the Co., v. U.S. Fire Insurance 678 S.W.2d 936 at 631. held that immate- We “an S.W.3d (Tex.1984) preclude Farmers’ denying her deprive rial breach does not the insurer of claim based the condition. of the bargain the benefit and thus cannot Again, we disagree. the insurer of the cov- relieve contractual we erage obligation.” Prodigy And in con- Puckett, the insurer denied a claim that to “Prodigy’s obligation pro- cluded an damages to insured airplane vide with notice of claim ‘as insurer] a [the crashed. 678 S.W.2d at 937. The insurer practicable’ material soon as was not a policy provisions relied on requiring the the part bargained-for exchange” of so airplane to have current airworthiness was not coverage defeated. 288 S.W.3d at certificate suspending during coverage Finally, in Lennar we held that the the time it did not. Id. When the accident requirements prohibiting at issue— occurred the aircraft’s certificate had voluntarily making any an insured from lapsed plane’s the because annual inspec- or payment assuming obligation without tion was overdue. Id. But the crash was the consent—were “essential insurers’ by pilot caused error and causally was not coverage.” to related to whatever caused the airworthi- All these cases an insured’s of involved ness certificate to have lapsed. Al- Id. something to do it failing agreed do though did not require a causal doing something agreed or to do. connection by between the in- to the facts to We looked determine sured and a in order loss for the loss to not deprived whether the insured insurer covered, be the Court concluded it was reasonably the insurer benefits could “against public policy to allow the insur- anticipated have if the insured performed company ance [a] situation [where obligation obligation its whether the by accident caused something unques- was part was question bargained-for tionably policy] covered to avoid exchange. obligation But there is not an liability by of a way breach that amounts Greene perform. here that failed to As nothing than a technicality.” more Id. discussed, previously Greene not re- was based, at 938. The in large decision quired to live in her house under part, on the public underlying the nor did she policy, agree that she would anti-technicality statute directed to fire in- Rather, not vacate house. the insur- See id. policies. surance rea- Court ing specified agreement the risk Farmers by enacting soned that the statute the and Greene accepted purchased: Legislature public expressed sixty would be dwelling covered until state that insurance could not days paid after she vacated it she unless be lost on a based technical breach premiums additional for an endorsement. Moreover, policy terms. the Accordingly, this case is from different allowing determined the insurer prejudice analysis formed deny the because the claim airworthiness basis of our decisions .out of date Prodigy, prin- certificate was would result in Lennar and the ciple underlying windfall for the insurer: the insurer our decisions those would not premium cases is determinative here. have even though collected under consideration policy aviation lapsed because of the exposure no risk had TDI Puckett. Nor does argue Greene certificate. authority by adopting the its exceeded in this case distin- appeals of The court TDP-011 the associated HO-A form or the va- the basis that Puckett on guished dwelling coverage providing endorsement prop- policy Greene’s is clause in cancy Second, vacancy. af- during an extended “technicality.” as a characterized erly Puckett, Legislature expressly del- ter Greene, Because of the at 285. 376 S.W.3d authority to TDI to make initial egated scope relationship to vacancy clause’s in an whether decisions about the court of agree with coverage, we of policy. Tex. public insurance violate provi- material the clause is a appeals 2301.007(a)(2). view, § In our Ins.Code coverage it and the Greene’s sion of the HO-A form and its prescribing TDI’s by is reinforced This conclusion provides. TDP-011 reflects associated endorsement above, that, a TDI- as discussed the fact balancing the public policy choice specific providing dwelling endorsement approved The insureds and insurers. interests of vacancy an extended is coverage during expression public of specific more premium. additional for an available of the HO-A adoption in TDI’s reflected rely- precluded is not from But Farmers pro- and the associated endorsement form clause for two other vacancy ing on the pursuant viding separate coverage terms First, did not breach the Greene reasons. given be def- legislative directive should we have discussed policy, or the clause expression general over the more erence Second, of the breach regardless above. in section 862.054. public policy reflected general pub- materiality questions, and anti-technicality public policy underlying Accordingly, neither lic outweighed by specific anti-technicality here statute nor underlying statute is our decision in Puckett prescrib- in TDI’s Farmers policy expressed preclude public to use in ing language the HO-A form insurers relying from Texas. claim. response clause in to Greene’s Legislature public establishes Disposition III. enactments. policy through its Fairfield that in the event we do requests Greene L.P., Paving, Stephens Martin Ins. Co. judgment of the court not reverse (Tex.2008) (“The legis matter appeals, then we remand the through public policy lature determines “clarify specifically court for it to and see also passes.”); statutes it Tex. Ins.Code Judgment do not Opinion state that its 31.002(1), 2301.006(a), §§ 2301.008. address, upon, much less rule Greene’s Puckett, only the the Court referenced waiver, prejudice, claims of lack of anti-technicality guide, statute as its but and/or it neces- estoppel.” We do consider there is more to consider in this case. See Puckett, sary judgment to do so. The trial court First, at 938. claims, causes, “all actions de- TDI severed Legislature prescrib has tasked with by judg- disposed fenses which are not forms to be used ing approving residential ment on Plaintiffs breach-of-contract companies writing insurance appeal for the cause of action.” Greene did not property insurance-which TDI did the order of dismissal. writing HO-A form used in the severance or Farmers Further, opinion appeals’ Greene’s the court Tex. Ins.Code 2301.006(a). 2301.003(b)(2), holding specifically §§ to its Greene detailed as not intend to the court did points legislation regarding to no indicates that such

771 (TDI), expressly address more than it did when it Insurance and Texas courts with no logical it did not consider one claim for predicting noted basis when this Court appeal impose made on will a prejudice requirement Greene because “this among is the claims severed from when it will not. claim “Those who depend upon Greene, require the instant case.” 376 the law continuity S.W.3d at and predictabili- ty.” Davis, 603, 286 n. 3. Davis v. 521 S.W.2d 608 (Tex.1975). itWhen comes to insurance judgment appeals The of the court of is policies judicially and the imposed preju- .affirmed. requirement, they dice will find neither. concurring opinion, Justice BOYD filed a I. joined. which Justice WILLETT Introduction BOYD, joined by

Justice Justice WILLETT, concurring. LaWayne Greene’s homeowners’ insur- policy provides ance coverage that the tendency always of the law must

“[T]he damage to her house “will be suspended uncertainty.” be to narrow the field of days effective 60 after the dwelling be- Holmes, Jr., Oliver Wendell The Common comes vacant” and will “remain suspended (1909). Today, Law 127 unfortunately, un- during vacancy.” such It is undisputed certainty prevails. that Greene’s home had been vacant for years, For over a hundred this Court more than sixty days when it damaged enforced policies insurance as written. by a fire. Greene contends that the vacan- Then, thirty years ago, judicially the Court cy provision apply should not poli- and the prejudice requirement wrote a into avi- cy should cover her loss because: policy, concluding ation insurance (1) it is unenforceable under an anti- public policy required reasons that result. statute, technicality see Tex. Ins. later, years Ten issued the Court first 862.054; § Code in a series of four decisions in which it (2) it is unenforceable under our materi- continued to impose prejudice require- coverage al-breach cases because the ment, but in those cases it relied on a did contribute to the fire prior-material-breach theory rather than insurer, or otherwise public policy. Today, the Court holds that see Lennar v. Corp. Market Am. Ins. the material-breach theory apply does not Co., 750, (Tex.2013); 755 provision because the at issue does not Prodigy Corp. Agric. Commc’ns impose obligation breachable on the in- Co., Surplus Excess & Ins. 288 sured but instead scope defines the 374, (Tex.2009); PAT, S.W.3d policy’s coverage, and thus there has been Co., Inc. v. Hanover Insurance no reasoning breach. The Court’s (Tex.2008); S.W.3d Her- right. sound and its result is But it is not Group Lloyds, nandez v. decisions, consistent prior with our four Gulf (Tex.1994); they because also involved (3) defined the scope rather than it is public policy unenforceable on imposed obligation. grounds a breachable under Puckett v. Fire U.S. Co., (Tex. Ins. cases, By failing disap- to follow those 1984). them, them, prove of overrule adequate- them, ly distinguish the Court leaves con- rejects arguments Greene’s sumers, insurers, Department Texas vacancy provision, enforces the con-

772 case, 862.054, in it apply our material- breach rule does not this section eluding that cases, Lennar, PAJ, Prodigy, and Puckett do not in coverage apply did not agree I that section 862.054 does I disap- and Hernandez. would therefore apply. I that we should not apply, agree and in To prove reasoning those cases. in impose prejudice stability consistency in promote our case, under our material-breach either holdings I leave our jurisprudence, would public policy ap- under Puckett’s or place, cases cases in but I would ex- those that our four agree But I do not proach. holdings decline to extend those pressly coverage cases are distin- material-breach notice-of-claim beyond specific kinds of cases, case. In those from this guishable provisions and consent-to-settlement at is- deny insurers could not cov- held that we acknowledge I that this is sue them. provisions based on de- erage because, pur- perfect not a solution in terms of scope coverage fined require- poses imposing prejudice by (specifical- the insured certain conduct ment, kinds of are not provisions those cases, untimely the insured’s ly, in those logically distinguishable from the settlement of a claim notice of a claim or it clause at issue this case. But is the consent) unless the without the insurer’s option point best at this because it Court’s preju- the conduct insurer showed public expectations will fulfill Lennar, interests. See 413 diced its provid- have created those decisions while 755; Prodigy, 288 at S.W.3d at S.W.3d ing predictability certainty for the fu- 632; Hernandez, 375; PAJ, 243 at illogical certainty ture. While is admitted- Here, we hold that the 875 S.W.2d at undesirable, ly it is at least better than the deny coverage poli- can based on a insurer illogical uncertainty that will result from cy provision scope that defines the of cov- decision in this case. Court’s erage in terms of certain conduct vacating the insured’s (specifically, insured II. days) sixty the home for more than re- Early Legislative Decisions and Actions gardless prejudiced of whether the conduct interests. the insurer’s century, For well over this Court con- sistently enforced insurance contracts as As 11 and others before me2 have ob- served, incorrectly based its written. If the contract limited Court Hernandez, PAJ, to, holdings Prodigy, upon, or conditioned it circumstances occur, faulty repeatedly of the mate- that did not exist or we application Lennar on if Today, coverage, rial-breach rule. the entire Court denied claims for even rule of the circumstances harm agrees that material-breach does absence did not apply, meaningfully company. the insurance but cannot dis- We tinguish involving this case from those. For the did this in several cases fire in- very policies,3including disputes finds the material- surance involv- reasons Lennar, J., 3.See, Bills, (Boyd, e.g., at v. 1. See 765-66 Hibernia Ins. Co. 87 Tex. concurring). 547, 551, 1063, (1895); 29 S.W. 1064 E. 229, Kempner, Texas Fire Ins. Co. v. 87 Tex. (John- Prodigy, 2. See 288 S.W.3d at 383-89 122, (1894); 27 S.W. 123 Fire Ass’n of son, J., Willett, JJ., joined by Hecht and dis- 632, 636, Philadelphia Flournoy, 84 Tex. J., senting); (Wainwright, Id. at 383 concur- (1892); S.W. Assur. Co. London v. (Willett, J., ring); 637-45 (Tex. 1892); Flournoy, 19 S.W. 795 E. Texas Johnson, Hecht, joined by Wainwright, and Clarke, 23, 25, Fire Ins. Co. v. 79 Tex. 15 S.W. JJ., dissenting); S.W.2d at Starr, (1890); Lion Fire Ins. Co. v. J., (Enoch, dissenting). 694-95 mg vacancy provisions like the one at issue better suited to make and enforce it in involving in this case.4 We did cases judgments about whether and when to consent-to-settlement like the mandate or alter insurance policy terms. Lennar,5 ones at issue in Hernandez and (defer- e.g., Kemp, See 512 S.W.2d at 690 And did it in involving prompt- we cases ring to “statutes and Board-approved poli- notice-of-claim like the ones at cy provisions”); Cutaia, 476 S.W.2d at 279 issue in Prodigy.6 PAJ and (“[I]t is policy better for the contracts of insurance to be changed by

Repeatedly public the resolutely, we insisted not, body charged supervision, that the Court could or at least -with their should ... not, byor the judicially inject Legislature, a require- rather than for this ment into the parties’ agreements.7 written Court to provision insert a that violations Instead, acknowledged we that the Legis- precedent of conditions will be excused if (or lature and TDI its predecessors) were no harm violation.”).8 results from their 733, (1888); 590, Georgia (1961); 12 Tex. S.W. 45 Home 594 Am. Fid. & Cas. Co. Jacobs, 366, (1882); Co., Ins. Co. v. 56 554, 561, Tex. 370 E. v. Traders & Gen. Ins. 160 Tex. Dyches, 772, Tex. Fire Ins. Co. v. 56 (1959); Tex. 565 334 S.W.2d 776 Century Klein v. (1881); Stone, Banking 160, 162-63, Tex. & Ins. Co. v. Lloyds, 95, 49 154 Tex. 275 S.W.2d 4, (1878); Long, Tex. 11 (1955); Galveston Ins. Co. v. 96-97 New Amsterdam Cas. Co. v. 89, (1879). Hamblen, 51 Tex. 92 306, 309-10, 144 Tex. 190 S.W.2d 56, (1945); 58 Mattingly, Sun Mut. Ins. Co. v. Long, years 4. which this Court decided 135 162, 163, (1890); 77 Tex. 13 Dych S.W. 1016 ago, involved contentions similar to those be- es, 570; 56 Tex. at Fire Ins. Ass’n v. Miller today. fore the Court 51 Tex. at 91. The fire Bros., 288, 290, 2 Willson 1884 WL 8125 policy provided insurance that it would be writ). (Tex.App.1884,no premises "if void the shall ... [insured] be- unoccupied, come vacant or and so remain See, e.g., Kemp 7. v. Fid. & Cas. Co. New of thirty days, for more than without notice to York, 688, (Tex.1974) ("We 512 S.W.2d 690 company, writing...." and consent of this are interpret bound to the statutes and Board- We by held that the trial court erred approved written.”); policy provisions as Cut instructing jury the to render a verdict in aia, (“[W]hen 476 S.W.2d at 279 condition [a] only favor of the insurer if it found that the breached, precedent liability liability [i]s vacancy had increased the risk. Id. at 91-92. (or discharged, the claim [i]s and harm lack Relying language parties’ agree- on the it) resulting from the breach immateri [i]s ment, we concluded that "[w]hether the risk al.”); Hamblen, ("[W]e 190 S.W.2d at 58 are by premises would becoming be increased the [provision] not authorized to add the further vacant, was not material.” Id. at 92. We showing damages that a that no loss or result holding Kempner, reached a similar 27 delay ed from the would relieve the insurer of ("[T]he policy exceptionally S.W. at 123 consequences give the of his failure to imme explicit apt the statement of terms notice.”); diate see also Fortis v. Can Benefits liability. company It is first stated that the tu, 642, (Tex.2007) ("Given 234 S.W.3d houses, and, will not insure vacant to enforce policy's this plain language, insurance we are that, certainty, provided the rule with it is if judicially loathe to parties’ rewrite the con the house should become vacant or unoccu- by engrafting tract extra-contractual stan pied company, without the consent of the Legislature dards that neither the nor the void.”). policy at shall once become null and Department Texas of Insurance has far thus promulgate.”). decided to See, Kline, e.g., Cnty. Guar. Mut. Ins. Co. v. 810, (Tex.1992) (citing 845 S.W.2d Ford Benefits, 8. See also Fortis 234 S.W.3d at 649 Co., v. State Farm Mut. Auto. Ins. ("As before, balancing dueling we have said 663, (Tex. 1977)). generally non-judicial concerns is for See, Cutaia, bodies, e.g., Members Mut. Ins. Co. v. and it remains the ‘better 278, (Tex. 1972); Allen v. W. changed by contracts of insurance to be Co., 572, 577-78, public Alliance Ins. 162 Tex. body charged supervi- with their Legislature In enacted two more Legislature to the was deference Our anti-technicality The first invali- statutes. Legislature began In not futile. any provision purporting dated to render of insurance and the business regulating property if the covered void Insurance, Department Sta- created hen the time of con- encumbered to TDI.9 History, predecessor tistics tracting during or became encumbered a statute Legislature enacted second, policy term.13 The which is “re- any policy provision invalidated statute on which predecessor given any to be claim for quiring notice case, that a provided Greene relies precedent a condition to the damages as or violation” of a fire insurance “breach thereon',” provision to sue unless right policy covering personal property could and allowed at least was “reasonable” not render the void or constitute 1903, Leg- ninety days for notice.10 coverage defense to “unless such breach “anti-technicality” islature enacted two bringing about the violation contributed to prejudice require- a imposed statutes that property.”14 destruction of the provisions that voided the ment on 1972, if made a false state- Cutaia By the insured the time we decided applica- Legislature ment in the insurance contract or had much of the shifted authority regulate tion or if the insured made a false state- to monitor and the busi of death.12 ness of insurance to TDI.15 The Insurance proof proof ment a of loss or sion, Insurance, 27, 1903, R.S., 69, Leg., byor Act of March 28th ch. the State Board of 1, 3096bb, 94, Legislature, § to con- art. Gen. Law rather than for this Court’ Tex. language (repealed). express of insurance travene the equitable arguments."). contracts with statute, voiding provision 12. Under this TDI, history 9. of the of see For discussion only misrepresentation was enforceable if the www.tdi.texas.gov. webpage at TDI’s fraudulent, material, and either misled the insurer or caused the insurer to lose a 4, 1891, R.S., Leg., 10. Act of March 22nd ch. valid defense to the Id. art. 3096cc. 17, 2, 20, (re- § Laws 1891 Tex. Gen. The current of codified version this statute is pealed). The statute current version of this in section 705.003 of the Texas Insurance codified in of the Civil Prac- section 16.071 § Code. See Tex. Ins.Code 705.003. tices and Remedies Code. See Tex. Civ. Prac. & Rem.Code§ 16.071. 31, R.S., 1913, Leg., 13. Act of March 33th ch. 106, 18, 195, § 1913 Tex. Law The Gen. progeny, 11. Unlike and its the stat- Hernandez current version of this statute is codified in utory prejudice requirement purely was not Instead, section 2002.002 of the Texas Insurance backward-looking. the statute made § Code. See Tex. Ins.Code 2002.002. voiding provision only enforceable if the misrepresentation “actually insured’s contrib- 29, 1913, R.S., contingency Leg., uted to the or event on which 14. Act of March 33rd ch. 1, 105, 194, payable” § said became due and or was 1913 Tex. Gen. Laws 194. The 27, "material to the Act of March risk." current version of this statute is codified in 69, R.S., 3096aa, Leg., § 28th ch. section of the Texas Insurance art. 862.054 Code. (repealed). 1903 Tex. Gen. Law The current version of this statute is codified in above, Legislature 15. As noted created the section of the Texas Code. 705.004 Insurance original predecessor to TDI in the late 1800s. § with, See Tex. Ins.Code 705.004. Legislature among The has tasked TDI things, ”regulat[ing] Another article enacted at the time other of in- same business state,” prevented relying "protecting] the insurer from on this surance in this and en- consumers,” type suring] misrepresentation provision unless the fair treatment of gave "ensuring] competition notice fair insurer insured voi- insurance industry competitive dance within a reasonable time order to foster a mar- discovering § misrepresentation. after See ket.” Tex. Ins.Code 31.002. charged duty Code of 1951 TDI with the tra was that are “[w]e bound to interpret prescribing variety the forms used for a the statutes and Board-approved policy common insurance policies.16 year af as written.” Kemp, 512 Legislature ter we deferred to the S.W.2d at Cutaia,

TDI in TDI issued a new amenda- III. endorsement, tory applicable to all Texas (CGL) general commercial liability policies, Imposing Prejudice Decisions prohibited which denying insurers from Requirement coverage based on the insured’s failure to Thirty years ago, the Court altered notice, give timely unless the lack of notice Puckett, course in in which it decided to prejudiced the insurer.17 judicially impose then,

Since oversight TDI’s of insurance on public policy grounds. 678 S.W.2d at policy forms expand. has continued to To- 938. airplane After an crash caused by day, majority the vast of Texas insurance error, pilot plane’s sought owner insur- policies composed are of forms that TDI ance coverage under a policy that excluded has approved, drafted or and the Insur- plane if the did not have a cur- prohibits ance Code an insurer from using rent airworthiness certificate. Id. at 937. a form approved that TDI has not for most The acknowledged plane types policies. of See Tex. did not have a current airworthiness certif- Ins.Code 2301.006(a) (“an §§ may insurer not deliv- icate and was not covered under the ex- er or issue for delivery this state a form press policy. terms the Id. Neverthe- for use in writing insurance by less, described the Court held that the covered Section 2301.003 unless the form has been loss, concluding that “allowing an in- filed with and approved by the commis- surance company liability to avoid when sioner”), 2301.003(b) (listing types of insur- the breach way of contract in no contrib- covered). ance utes to the loss is unconscionable and ought permitted.... not be It would be short, for over a century, sys- against public policy to allow the insurance tem worked. This Court’s adherence to company in that situation to liability avoid language contract and reluctance to by way of a breach that amounts to noth- rewrite contracts with the benefit of ing more than a technicality.” Id. at 938. hindsight are hallmarks of our contract jurisprudence, but these principles are in- Pope, joined Chief Justice by Justice violable in McGee, the context of insurance con- dissented in Puckett. 678 S.W.2d tracts, where language C.J., at 939^40 (Pope, dissenting). He ob- forms adopted are or approved by an ex- served that the Court had “written a new body ecutive created for that purpose. policy,” clause into the by “add[ing] to the That why, years, is for over 100 our man- contract the insur- 7, 1951, R.S., Leg., ty See Acts of June coverage property 52nd damage liability 5.06, ch. arts. 1951 Tex. Gen. Laws coverage, company prejudiced unless the 925-26; (auto- § see also Tex. Ins.Code 5.06 by the comply insured’s failure to with the insurance). mobile requirement, any provision of this re- action, quiring give the insured to notice of Ins., 17. See State Bd. of Revisions Texas loss, requiring occurrence or the insured to Standard Liability Provisions General Poli- demands, notices, summons, forward or other Endorsement-Notice, Amendatory Order cies— No. 23080 legal process liability shall not bar under the (March 13, 1973). The endorse- policy.” Id. respects bodily ment stated: injury "As liabili- dent, entered into a settlement with the prove must that the breach company anee driver caused the accident without the the accident.” Id. at 940. who was the cause of was, consent, sought and then to re- holding by insurer’s He stated that Court’s cover losses in excess of the settlement acknowledgement, “contrary to the its own coverage. motorist courts” and had “been under his underinsured reasoning of most at 692. As in Texas de- uniformly rejected by prior our Kline, excluded if the by majority been cisions as it has (citing Ranger obtaining Ins. Co. a claim jurisdictions.” insured settled without (1978)).18 Bowie, 540, 542 unlike the insurer’s consent. See id. But Kline, “[tjoday’s applied he warned that decision the set And which Court policies life, that insurance casual- provision means tlement-without-consent as writ — by though agreed upon ten, insured ty, superimposed the'Hernandez Court fire— insurer, though authorized prejudice requirement provision. onto the Insurance, though clear and un- Board fail The Court reasoned that the insureds’ uncertain ambiguous, are burdened with ure to obtain consent for the settlement may court from time to terms and a policy, was a breach of the insurance should have been included time determine the insurer’s obli breach would excuse contract.” Id. parties’ if the breach was gation perform only material. Because the breach did out, it never ex- As turned insurer, it was not material ruling panded policy-based Puckett’s be- and therefore did not excuse the insurer’s yond the context of aviation insurance performance under the Id. at 692- Instead, adopted a new cases. imposing prejudice require- basis for rule. Hernan- ment: the material-breach Justice Enoch dissented in Hernandez. dez, then, at 694. Since view, In his the material-breach rule was applied divided Court has the material- inapplicable because the issue was not coverage breach rule in three additional whether the settlement without consent 755; Lennar, cases. See 413 at S.W.3d coverage excused the insurer from its obli- PAJ, 375-78; Prodigy, 288 at 243 gation but whether the insurer had a cov- S.W.3d S.W.3d at 631. in erage obligation place. the first See id. (“[Tjhis (Enoch, J., dissenting) at 694 case A. Hernandez of contract. is not about a breach This 1994, only year coverage.”) a after the case is about Because the in- Court apply” policy expressly enforced a settlement-without-eonsent surance not “d[id] Kline, 811, clause in 845 at if the insured settled a claim without the S.W.2d consent, the had no cov- opposite Court reached the result under insurer’s insurer Hernandez, very erage duty regardless similar facts in 875 of whether the Her- Kline, contract, materially at 694. As in the claimant nandezes breached the S.W.2d id.; in injured Ap- Hernandez was in a car acci- or otherwise. See see also Solar significant jurisdictions’ represented 18. Puckett a shift in with most American aviation- law, respect specifically.” AIG Avia- at least with to aviation insur- insurance decisions Inc., (Tex.), policies. Helicopters, ance 248 As one Justice of the Court has tion Inc. Holt observed, J„ (Tex.2008) (Willett, judicial rewriting "Puckett's S.W.3d 170 dis- short, parties’ senting). granted contract clashes head-on with our "In Puckett an un- 'modest, coverage approach’ interpreting bargained-for expansion text-based language” starkly bargained-for contract and “is at odds face of a exclusion from cover- generally, age.” with our and Id. insurance decisions

777 T.A. Eng’g, Operating give Inc. v. insurer of a claim notice “as soon plications (Tex.2010) (dis practicable,” and the insured’s Corp., right S.W.3d coverage was cussing the difference between breach of conditioned on compliance condition). all of policy’s with terms. and failure to fulfill a See id. contract at (quoting policy language). Enoch observed Court’s Neverthe- Justice less, the Court held that with its disposition dispo was inconsistent insured’s “immaterial Kline, provision breach” of the notice in essentially sition which involved not facts, deprive “does the insurer of the benefit reasoning and its was in identical the bargain cannot Cutaia, thus relieve reasoning with its in consistent insurer of the contractual obli- judicially which the Court declined to im gation.” Id. at 631. prejudice requirement a on a notice- pose Hernandez, provision. of-claim The majority PAJ did overrule Cut- at 694. He noted that S.W.2d also aia, it, distinguish even explain why adopted jurisdictions prejudice that had govern. Instead, did not Id. at 632-33. for settlement-without-con requirement the Court relied on primarily the fact that primari had done based sent so TDI had mandated the prejudice-require- ly public policy grounds, faulty on bodily ment endorsement injury of the material-breach rule. application property damages policies under CGL the wake of Id. at 632. Noting Cutaia. policies that CGL did not cover advertising B. PAJ injuries passed when TDI the endorse- years after Fourteen ment and the endorsement had since been prior between and our expanded conflict Hernandez advertising injuries, cover (Cutaia, particular) precedent implied was that TDI’s failure to extend PAJ, prejudice before Inc. v. squarely us Hanover to advertising Co., injuries merely which sooner was an oversight Insurance involved insured’s give its that the Court free to non-prejudicial judicially failure to insurer cor- Id. at rect. 632-33. notice of a claim. 243 S.W.3d prompt (Tex.2008). In split, a five-four justices dissenting four would have majority chose to follow Hernan- Court’s followed Cutaia and the Court’s extensive dez, Cutaia, judicially rather than im- disputes in notice-of-claim precedent be- posed requirement. Id. at Hernandez. fore 637- policy, 635-36. involved a CGL PAJ and (Willett, J., Hecht, joined by Wain- included the thus TDI-mandated endorse- Johnson, JJ., wright, dissenting). and providing timely that a ment lack notice than to proposing Rather overrule Her- bodily not coverage injury would defeat nandez, they logical offered basis for property damage or claims unless the in- reconciling distinguishing and Cutaia and prejudiced by delay. surer was Id. the at Hernandez: the notice-of-claim require- But in 632. the claim at issue the case regard ment we enforced to preju- without an advertising injury, was for rather than in dice Cutaia was a “condition expressly bodily injury property damage, for and be satisfied precedent” trig- had to to apply. the not ger coverage obligation,19 thus endorsement did See the insurer’s The policy required id. the insured to the had “viewed”20 Hernandez Court while Cutaia, PAJ, policy policy precedent The policy” in like the in terms of this condition to Cutaia, coverage. S.W.2d at compliance with "all made insured's "Rather

20. The dissent stated: than treat the in claims-made provisions notice-of-claim in Her- requirement the consent-to-settle at 375. The Prodigy, 288 S.W.3d policies. that the insured “covenant” as a nandez in- “claims breached, Prodigy relieve the covered would at issue which had only if the obligation during the coverage an insured against of its first made” surer PAJ, 243 was material. As “a condition Id. at 376. policy term. Hecht, (Willett, J., joined by Wain- under rights insureds’] to precedent [the JJ., Johnson, dissenting). The and wright, the in- required Policy,” this however, rejected this dis- majority, PAJ written notice to the insurer give sured precedent” “conditions between tinction ... but practicable “as soon as a claim “covenants,” had noting that Court and (90) days after ninety than no event later in Hernandez. distinction made no such Id. A of the term. expiration” no reason Hernandez had at 635. But Id. the insured policy expired, after the week in- because it address distinction to a claim that the insurer of notified exclusion, prece- not a condition volved year. for over a had known about insured at 692. dent.21 See conceded that was Id. The insurer out dissenting justices pointed also Fol- Id. at 375. by delay. prejudiced to for deference argument that, Cutaia’s PAJ, held Prodigy lowing stronger in PAJ was even regulators state give the in- insured did although the because, after been in than it had Cutaia prac- of the claim “as soon surer notice Cutaia, “surgically” to TDI had elected cover ticable,” obligated to the insurer was into some requirement prejudice insert a not prejudiced because it was the claim not others. but notice-of-claim though Id. at 382-83. Even delay. PAJ, post-submis- at 641. In policy’s notice-of-claim that, out briefing, pointed the insurer sion coverage, precedent” a “condition was designated approved TDI had since the distinction again rejected the Court re- included a endorsement that precedent between a condition in- advertising quirement personal perform. covenant and a contractual injury bodily that for jury claims similar to at 378. Id. at 642. damage claims. property argued Prodigy The insurer view, adoption TDI’s the dissent’s Prodi- from PAJ because distinguishable the ab- in 2000 underscored endorsement rather gy involved a claims-made any prejudice requirement sence of such Id. The id. at issue in PAJ. See than an occurrence-based pre-2000 policy “critical dis- recognized a PAJ Court had Prodigy C. occurrence-based tinction” between “ben- policies adopting claims-made the Court yearA after we decided bargain” approach to determin- to efit of the prejudice requirement extended PAJ’s no “breach” or "violation” a condition there was exclusion as [consent-to-settle] obligate precedent, policy Court viewed it as did not present ] case: the [Hernandez covenant, ordinary contractual obli- before insurer's consent insured to obtain the gation, which ex- performance claim, simply settling it did not "did PAJ, only if the breach were material.” cused without consent. apply” if the insurer settled Hernandez, (citing at 638 692-93). an accurate S.W.2d at While this is made no Additionally, the Hernandez reasoning description of the in Cutaia, failing distinguish to even effort to glosses reasoning in Hernan- over whether the Hernandez, 875 S.W.2d at ft. See mention argue that it was was correct. I would dez 691-93. not, the Court holds for the same reasons breach, of a ing materiality indicating that losses and expenses are disrupted.” Id. at requirements “subsidiary view, notice were to 387. In their “[pjolicy language and in triggers coverage” event that occur- its effects on the insurer’s business are but policies rence-based claims- matters better through addressed leg- policies. made 243 S.W.3d at regulatory islative and processes than (quoting Corp. Matador Petroleum through judicial process,” because the Co., Surplus St. Paul Lines Ins. 174 F.3d legislative and regulatory processes allow (5th Cir.1999)) (citations omitted). 653, 658 prospective, rather than retrospective, im- Prodigy, In the Court reasoned that the plementation changes terms, policy to policy’s 90-day notice deadline was essen- such premiums can accurately be as- tial to the of the bargain benefit for a sessed based on the actually risk assumed (often accurately claims-made more at the time the policy is called a claims-made-and-reported policy) issued. Id. at (citing 387-88 Cutaia in practicable” but the “as soon as limit was support of legislative deference to reg- common in both claims-made and occur- ulatory governance of insurance policies rence-based and was not essential terms). Additionally, the dissent ex- bargain to the benefit of the for either. plained that Legislature and TDI have Id. at 378-81. The Court observed that time, staff, “the expertise resources and these different limitations on notice investigate and bring all relevant informa- purposes served different “as soon —the tion to bear on such issues.” Id. at 389. practicable” notice requirement “serves opportunity insurer’s ‘maximiz[e] D. Lennar reserves, investigate, set and control or Finally, the Court relied on the materi- participate negotiations with the third al-breach party impose rule to asserting against the claim the in- re- ” sured,’ quirement again Lennar, year. while the last for notice within the homebuilder period within a cer- determined that homes it had tain days number of thereafter using “is direct- built an exterior insulation and finish (EIFS) ed to the temporal poli- boundaries of the system subject were to serious wa- cy’s basic terms” and “defines damage ter that worsened over time. 413 obligation.” limits the insurer’s at 751. The builder decided to at (quoting remove the EIFS from its homes and re- On Couch Insurance 186:13). §3D stucco, place it with regard- conventional less of yet whether the home had suffered justices Three four who dissented damage, from water and it sought reim- in PAJ also dissented in Prodigy, and the bursement of its costs from its insurers. because, fourth concurred although he dis- Id. at 752. E Condition of the insurance agreed Prodigy, with the result he insured, policy provided that “no except at agreed that the majority holding in PAJ cost, may their own voluntarily any make dictated that result. Prodigy, 288 S.W.3d payment, any assume (Johnson, J., obligation, or incur joined 384-85 by Hecht Willett, JJ., any expense ... without dissenting); [the insurer’s] id. at 383 J., consent.” Id. at (Wainwright, 753. The insurer had concurring). The dissent that, observed refused to consent to the “when courts rewrite insured’s removal exist- ing policy provisions replacement program as the in and because it re- Court does case, homes, predictions replaced insurers’ actuarial of moved and all EIFS in all expenses, losses and process regard and the of without to the existence or extent setting premium projected rates to cover of water damage to each home. Id. The obligated therefore to cover had held in an earlier insurer was appeals

court costs, regardless of whether the insured’s deny that the insurer could appeal them, for legally the insured was liable the basis of the insured’s fail- coverage on prejudice. could show unless insurer E unless the comply with Condition ure to breach, Id. at 756-57. by the and prejudiced insurer asked this to parties neither in I Concurring judgment, the Court’s (“Neither holding. See id. review that I would have reached a explained sought nor Markel review of Lennar “writing if we were on a different result Both have ac- appeals’ court of decision. slate,” acknowledged but I that Her- blank holdings governing that court’s cepted nandez, PAJ, Prodigy compelled and case.”). insurer had not Because the J., (Boyd, Court’s result. Id. at 759-66 the insurer could not prejudice, proven prece- concurring). recognized I that “our E. Id. deny based Condition may dents be difficult to understand and at reconcile,” they but concluded that were insurers, insureds, on which now basis only E was not the con- But Condition TDI, reasonably Legislature and the relied policy. in the provision sent-to-settlement drafting entering and into insurance “ulti- sought coverage The insured for its However, urged I policies. Id. at 765-66. loss,” net defined as mate which Court, clarity, “for the sake of consis- [property] damages “the total amount of tency, predictability,” and to abandon its legally for which liable” as insured] [the approach material-breach and in- flawed arbitration, “by adjudication, determined recognize prejudice require- that the stead compromise or a settlement to which [the product ment was the of the Court’s agreed writing.” Id. previously insurer] preferences principles rather than the argued, The insurer and the Court as- contract construction. Id. sumed, that these were the three exclusive establishing liability means of the insured’s IV. Id, for an “ultimate net lost.” On this basis, argued the insurer that it did not Distinguishing the Material- prove have to that the failure insured’s Coverage Breach Cases get consent it because the con- prejudiced Today, apply the Court declines to requirement sent was “essential to cover- analysis material-breach on which relied age” under the Hernandez, PAJ, Prodigy, and Lennar. disagreed, reasoning

The Court that the The Court asserts this case is distin- requirement guishable consent cover- those rea- policy’s from cases two first, age provisions “exactly served the same” sons: those cases involved “breach- not, second, as the purpose consent es” while this case does and E, provision Condition and thus was “no more cen- the “breached” in those cases vacancy provi- tral to the E.” Id. were immaterial Condition while require- the prejudice Court held that sion in this case is material.22 The Court is “operate[d] identically” ment no here respect with correct that there is and material, language provisions, provision in both and the issue is phrase ognized contrary, 22. The Court sometimes uses the "fail- it. To the the Texas Pattern Jury Charge comply” ure to If Texas breach of instead "breach.” there countless failing finding comply is a difference between with contract have treated a that a cases obligation breaching party comply a contractual a con- has failed to with the contract obligation, equivalent the contract. tractual this Court has never rec- as the of breach of legally these are sound bases for the moving sixty out for days simply placed holding, Court’s which is also correct. But the home outside the scope of the coverage legally these are not sound bases for dis- she purchased. had The Court correctly Hernandez, PAJ, tinguishing Prodigy, or concludes that the analysis material-breach Lennar. The that reasoning leads the does not apply here because the question to hold that there was Court no breach is not whether Farmers is excused from here holding would lead to the same in paying on a covered claim due prior to a Hernandez, PAJ, Lennar; Prodigy, and material breach policy, rather, of the but analysis and the that the Court used to whether the covers Greene’s home Hernandez, PAJ, hold the light of the vacancy. The Court cor- Prodigy, and Lennar were not material rectly concludes that it does not. See id. holding today. would lead to the same In at 784. But thing the same was true in short, right either the today Court is or it Hernandez, PAJ, Prodigy, and Lennar. Hernandez, PAJ, right Prodigy, The Court asserts that “[a]ll these and Lennar. Both cannot be true. cases involved insured’s failing to do something agreed it doing do or some- Argument A. The “No Breach” thing agreed not to do.” Id. at 769. The Court observes that Farmers is not This is simply Hernandez, incorrect. relying on a breach to excuse itself from a the policy excluded underinsured motorist coverage obligation, relying but instead is coverage if the insured settled with the provision on a scope defines the of the underinsured motorist “without written policy’s coverage. explains The Court consent of the company.” Greene “did not her obligations breach (Enoch, J., (not- S.W.2d at 694 dissenting) under policy by moving out of her ing that stated it “does not home”; parties instead “the simply agreed circumstances). apply” under such As in on the effect of vacating Green’s her case, Hernandez agree did not to ob- house.” Ante at 768. Because there was tain the insurer’s consent any settle- breach, no “the question materiality aof ment and thus “did not breach [his] obli- subsidiary breach and its preju- issue of gations policy” under the by settling a Thus, dice are not raised.” Id. at 768. claim getting without first his insurer’s rejects Greene’s reliance on Her- Instead, consent. parties simply “the nandez and PAJ because our holdings in agreed on the effect of’ those actions: no those cases are “rooted ... in contract id., coverage. Compare with ante at 768. law, focusing on principle party that a from obligations excused its to perform Nor was there a breach in Lennar. under a only contract if the other party policy expressly That scope defined the commits a material breach.” Id. at 767. those, coverage to only include settlements agree. I Greene’s does not obli- to which the insurer had consented.23 See gate residence, Lennar, 755-56; her to reside in the 413 S.W.3d at see also id. J., Farmers does not contend that she breach- 764 (Boyd, concurring) (noting that policy by Instead, ed the moving out of it. opinion the Court’s imposed limits coverage period to the prior-material- based on the (not occupied rule, time when the home is and for though even “no one even Court) sixty days thereafter, and Greene’s act of asserts Lennar ‘breached’ Again, according this is to Lennar’s con- we purposes assumed to be correct for definitions, opinion. struction of the which and “in no ”)(cid:127) practicable” “as soon as in Hernandez and in notice ... As (90) PAJ, here, agree days”); to ninety Lennar did not event later than the case any settle- (conditioning coverage consent to the insurer’s 243 at 631 obtain S.W.3d terms, the insur- ment, without its settlement includ- compliance and on with certain obli- [its] “did not breach practicable”).25 er’s consent In ing notice “as soon as instead, “the policy”; one, gations words, cases, under in this other in those on the effect of’ simply agreed parties on the effect parties simply agreed “the coverage.24 Compare id. no those actions: coverage. no of’ the insureds’ actions: (“Lennar’s prior Markel’s failure to obtain Lennar, at with 413 Compare ante give not rise to a consent could written 755-56; at Prodigy, at S.W.3d Insuring for breach of the cause of action PAJ, 376; 243 at 631. “[T]he S.W.3d Instead, simply Definition. Agreement of a breach and its question materiality of falling from the settlements prevented thus, subsidiary prejudice,” issue of liabilities that Lennar types of within at not raised.” See ante “[we]re cover.”), to with ante at 781. paid Markel give agreed if the insureds And even “Materiality” Argument B. The policies of a claim in the prompt notice attempts distinguish The Court also Prodigy, policies in those issue PAJ Hernandez, PAJ, Prodigy, and Lennar on the insurance cover- expressly conditioned in ground that the “breaches” those Thus, giving of such notice. age on in were immaterial while the breach cases case, in this the insurers in like Farmers material. This effort fails for this case is argue they were those cases did First, “materiality” two reasons. performing” poli- “excused from under (1) is, only the breach is relevant if there party “the other commit[ted] cies because (2) fact, non-breaching a breach and See ante at 767. In- a material breach.” per- on the breach to avoid stead, party relies that their argued poli- the insurers But neither formance under the contract. they cies claims of which only covered here, .they is true and nor were true timely Prodigy, received notice. 288 Hernandez, PAJ, In (conditioning coverage Prodigy, or Lennar. S.W.3d at 376 See, e.g., Appli language Solar 24. The in Len- dissents did so as well. settlement-related policy appeared places: nar's in two Condi- Operating Corp., Eng’g, v. T.A. 327 cations Inc. "legal tion E and the definition liabili- (Tex.2010) (citing Centex S.W.3d 108 ty” Lennar did that the covered. Dalton, (Tex. Corp. agree in either section to obtain the insurer’s 1992)) (citations omitted); Prodigy, see also Instead, settling a both consent before claim. J., (Johnson, joined by 288 S.W.3d at 384-88 provisions merely indicated that the Willett, JJ., dissenting); Hecht and would not cover settlements to which the in- J., (Willett, Hecht, joined by S.W.3d at 637-39 provid- surer had not consented —Condition E Johnson, JJ., Wainwright, dissenting). unapproved ed that settlements would be at short, party to fulfill a condition when a fails expense, Lennar's own and the definition of precedent party's obligation, to another "legal liability” required that the loss be es- by adjudication duty party tablished or arbitration or in other has no under the contract to approved writing. a settlement See 413 perform obligation, regardless of whether S.W.3d at 755. has been breached. See Solar contract 108; Applications, 327 S.W.3d at Restatement Prodigy involved notice re PAJ both 225(1), (2). § The ma (Second) Contracts quirements precedent that were conditions analysis jorities’ use of the material-breach coverage. explained This Court has the dif Prodigy fulfill a PAJ and confused failure to ference between a and the contract precedent with a condition mere contractual precedent failure to fulfill a condition on nu occasions, Prodigy and PAJ breach of a contractual covenant. merous and the cases, all of these the issue not wheth- bargain, since the insurer was not prejudiced er the conduct insured’s excused the insur- the insured’s conduct. See Lennar, er fulfilling coverage obligations from its S.W.3d at (holding contract; insurer deprived was not under the it was whether the of the benefit of performance full because coverage obligation insurer had a under the insurer was not by harmed the cases, unapproved insured’s the contract at all. In most of these settlement); Prodigy, one, 288 at S.W.3d 382 including this the insurer did not even (holding that insurer was deprived not allege that the insured had breached the the benefit performance of full because the Instead, cases, contract. in each of these insurer by was not harmed untimely the argued the insurer that the policy simply notice); PAJ, (hold- 243 S.W.3d at 636-37 did not cover the loss. ing that insurer was not deprived of the Second, even if there were a breach performance benefit of full because the here, (or “materiality” the of the breach insurer by was not harmed untimely the thereof) lack is. indistinguishable from the notice); Hernandez, 875 S.W.2d at 692 materiality of the “breaches” Hernan- (holding that insurer was not deprived of dez, PAJ, Prodigy, and Lennar. As the performance benefit of full because the out, cases, points in all four we insurer was not by harmed the insured’s determined whether the insured’s “breach” settlement). unapproved short, In we equ- was “material” examining whether the materiality ated prejudice. with See Len deprived “breach” the insurer of the bene- nar, 755; 413 S.W.3d at Prodigy, 288 fit that reasonably anticipat- it could have 382; PAJ, 633-34, S.W.3d at 243 at S.W.3d ed from full performance i.e., the benefit — 636-37; Hernandez, 875 at S.W.2d Lennar, bargain. of the See at S.W.3d test, Under that vacancy clause at (“Generally, one party’s breach does issue in this equally case is immaterial performance not excuse the other’s unless because the insured’s failure to reside in the breach is material. One factor in de- prejudice house did not the insurer. termining materiality is ‘the extent to Farmers, fact, expressly has conceded which the nonbreaching party will be de- point. vacancy Because the of the prived of the benefit that it could have house did not contribute to cause the fire reasonably anticipated from full perform- damage, the interest ”); (“an Prodigy, ance.’ 288 S.W.3d at 377 designed clause protect (minimizing to immaterial breach deprive does not the fire risks for a vacant dwelling) was insurer of the benefit of bargain injured not here. But for the same rea- thus cannot relieve the insurer of the con- sons, the interest that the prompt-notice tractual obligation.”) (quoting provisions in Prodigy PAJ and were de- citing S.W.3d at signed protect (ensuring to adequate time 692); PAJ, 875 S.W.2d at gather to information prepare a de- (same); Hernandez, 875 S.W.2d at 692 fense) injured, was not and the interest (“A fundamental principle of contract law that the consent provision in Hernandez is that when one party to a contract com- (the and Lennar were designed protect to contract, mits a material breach of subrogation rights) insurer’s in- was not other party discharged is or excused from sum, jured. if “materiality” test the any obligation perform.”). Hernandez, PAJ, Court announced in cases, In each of those we held that the correct, Prodigy, and Lennar is “breach” was not “material” it because did holding today Court’s cannot If be. deprive not the insurer correct, of the benefit of holding today Court’s and I If an insurer must show is, “materiality” artic- case? test

agree that provision, enforce an “immaterial” be. four cases cannot in those ulated if the insurer are “immaterial” states, bottom this “[a]t the .court As is an in- prejudice, suffered no when has breach, it is about what not about case is required prejudice? ever not to show surer and Farmers purchased coverage Greene certainty about any If Texans are to have have Greene seeks to provide. agreed to apply the courts will construe and how policy under the insurance re-write us cases, insurance contracts in future their pro- it so Farmers ‘construing’ guise of reasoning disapprove we must agree provide, coverage it did vides our decisions in those which we based coverage she did receives and Greene cases. I but agree, at 768. for.” Ante contract Hernandez, PAJ, in true equally this was and Lennar.26

Prodigy, V. Certainty Struggle for the Material-Breach on C. Conclusion Analysis Ultimately, join I the Court’s cannot provides in because it no opinion the heart this case correctly identifies The Court can parties basis on which courts or this case is not clear matter: “At bottom of this rule breach, ... whether the material-breach coverage[.]” decide about it is about we can- correctly in future cases. Because applies Enoch Ante at 768. Justice Hernandez, from distinguish not this case his Hernandez made the same observation Lennar, PAJ, we must follow Prodigy, a breach case is not about dissent: “[T]his them, cases, coverage.” expressly those overrule or is about of contract. This case on some basis.27 If They right, application are both limit their at 694. progeny accurate we followed Hernandez and its would be and the same statement case, flawed Despite the rule of law would be Prodigy, about and Lennar. efforts, provisions condition- is no valid basis but consistent: there Court’s by conduct the in- ing coverage this case from Hernan- on some distinguishing (like notice, dez, PAJ, timely obtain- providing Lennar. Because sured Prodigy, and settle, occupying inapplicable ing on an le- consent to those decisions rest enforced absent a they logically premises) be dis- could be gal principle, cannot would distinguish showing prejudice. parties a court And tinguished: How can (or breach) an insurer certainty in one have some about when the breach absence of a prejudice to enforce conditions case from the breach in an earlier case must show coverage: always.28 earlier almost when there was no breach Lennar, Hernandez, "ultimate net loss.” See "constru[ed]” we policy expressly at 756. a loss to which the coyer apply.” See "d[id] Prodigy, J., we "con- Lennar, S.W.2d at 694. In PAJ and (Boyd, 413 S.W.3d at 759 27. See policies ("[I]f to cover losses of which stru[ed]” concurring) going we are to continue provide timely notice even the insured did not imposing prejudice requirement, as I do, though policies expressly agree precedent compels conditioned cov- our us to we erage timely Prodigy, doing public on notice. See should admit we are so on 382; PAJ, grounds, at 636. In our well-in- S.W.3d at rather than continue Lennar, ultimately inadequate efforts to policy expressly covered “ultimate tended but loss[es]," justify holdings on the basis of contract net but we it to cover our "constru[ed]” principles.”). a loss that fell outside the definition of hand, if those other we overruled ond. On the Because outcome in Hernandez depended “materiality” on the 100-plus years returned to our of a cases and was, fact, breach, when there no Hernandez, continuity before precedent cannot logically distinguished be or cab- case would suffer but Texas’s insurance ined. bé track: right law would back coverage on

policy provisions conditioning Because Hernandez and its progeny or occurrence of fact or the existence some precedent have been our for the last twen- ty years, be and as I event would enforced as written conclude that we should leave their TDI, place. But holdings because absent a their approved statute material-breach rationale lacks the sound parties a different result. requires And logical basis that is the foundation judi- certainty have about an insur- would when cial predictability, we should abandon init er show condi- must enforce public policy favor of a rationale. See coverage: when the contract or a tions of Lennar, J., (Boyd, 413 S.W.3d at 759 con- requires. statute so (“[I]f curring) we going are to continue expressly prior But if we limited our imposing the I prejudice requirement, as to the consent decisions kinds of notice and agree precedent do, our compels us to we cases, at issue in as I those doing should admit we are public so on here, policy grounds, we the rather than recommend would retain continue our ultimately inadequate well-intended but ef- greatest degree continuity certainty of and forts our justify holdings to on the basis under existing precedent. available our principles.”). Having contract recognized An would have to prejudice insurer show public policy, that it is and opera- not the deny coverage to based on an insured’s law, tion general contract that makes give prompt failure to notice to obtain or notice-of-claim and consent-to-settlement to settle under like provisions consent requirements like those in Hernandez et progeny,29 those in Hernandez and its but prejudice, alia unenforceable absent we would not have to show to en- to should decline extend that beyond force other terms unless Puckett, those deferring cases and instead this, provided. so contract To achieve we Legislature to the TDI and to dictate to would have abandon the material-breach terms, insurance as the Court cor- analysis adopted we in Hernandez rectly in case. does this Lennar. propagated Prodigy, and confirms, today’s analysis As decision that VI. and, legally incorrect more importantly, Conclusion practically unworkable. The principle justify eye can turning stare decisis a blind I judgment concur the Court’s in this case, shortcoming agree to the first but not sec- but do not with all of its reá- say certainty” say I "some al- prog- and "almost I "like those its Hernandez ways” because the line to be would have eny” holding because in those cases do Presumably, insured drawn somewhere. apply provisions. to all notice and consent not, pay premiums to her who failed could Specifically, Prodigy Court indicated that flood, fire simply pay-up after a before practicable” while the "as soon as notice re- reporting the claim to cover- and be entitled quirement preju- not enforceable absent age prejudiced because insured was not dice, 90-day requirement notice Otherwise, timely payments. lack of provision same would have been enforceable pay premiums no insurer would unless or prejudice. absent 288 S.W.3d at 382. until a claim arose. distinguish to its effort soning, particularly progeny. and its Hernandez case from logic acknowledge the flawed

I would decline to expressly line of cases any other insurance it to

extend the insured outside place

provisions there is cover- for which

the circumstances permit This would under

age insurers,

consumers, TDI, Legislature, reliably when such predict to

and courts according general operate

provisions preju- special and when the law

contract in- applies Hernandez requirement of

dice judicially- Having restricted

stead.

imposed prejudice notice of require prompt settlements, I any

claims and .consent and to the Legislature defer to the

would of Insurance to decide Department

Texas prejudice require- impose

whether to any policy provisions.

ment on other

EX PARTE Jecia Javette

MOSS, Applicant WR-76,635-03

No. Appeals of Texas.

Court of Criminal

Delivered: November

Case Details

Case Name: Bob Greene, as Next Friend of Lewayne Greene v. Farmers Insurance Exchange

Court Name: Texas Supreme Court

Date Published: Aug 29, 2014

Citation: 446 S.W.3d 761

Docket Number: 12-0867

Court Abbreviation: Tex.