SAN ANTONIO COURT OF APPEALS AFFIRMS SUMMARY JUDGMENT; INSURER OWES NO DUTY TO DEFEND INSURED AGAINST MISREPRESENTATION CLAIMS

Last Wednesday, in Branham v. State Farm Lloyds, 2012 WL 3985925 (Tex.App. – San Antonio, Sept. 12, 2012), the San Antonio Court of Appeals affirmed a summary judgment granted in favor of State Farm Lloyds.  State Farm’s insured, Wendy Rutherford Branham, argued State Farm had a duty to defend the claims against her for misrepresentations she allegedly made in selling her home.  The purchasers of the home, the McCulloughs, alleged in the underlying lawsuit Branham falsely represented that, among other things, there was no previous flooding or water penetration into the home.

On appeal, Branham acknowledged that several sister courts have held that an insurance carrier has no duty to defend a homeowner who makes misrepresentations in selling a home. Branham argued the facts in those cases were distinguishable because she could have “negligently” forgotten about the prior damage and insurance claim in the instant case.  In rejecting this argument, the court noted the McCulloughs did not allege she forgot about the prior damage; instead, the McCulloughs’ factual allegations asserted Branham made false representations and made cosmetic repairs to conceal the prior damage for which she received insurance proceeds to repair.

The court also rejected Branham’s argument that the prior decisions have questionable precedential value after the Texas Supreme Court defined “accident” in Lamar Homes, Inc. v. Mid–Continent Cas. Co., 242 S.W.3d 1 (Tex.2007).  In rejecting this argument, the court stated the damages resulting from Branham’s alleged misrepresentation of known facts were not unexpected but were the natural and expected result of Branham’s  design  or  plan  to  conceal  the  true  facts.  Moreover,  the  McCulloughs  clearly  alleged  that Branham intended the injury.

Thus, based on the allegations in the McCulloughs’ petition and the language in the policy, the court concluded State Farm did not have a duty to defend Branham.