Jack Nelson Jones Professional Association

April 17-23, 2017

Farm Bureau Mut. Ins. Co. of Ark. v. Davenport, 2017 Ark. App. 207 (April 5, 2017)

This appeal comes from the St. Francis County Circuit Court, honorable Chalk Mitchell presiding. This case concerns the determination of the meaning of occupancy in an insurance policy to establish whether coverage existed at the time of loss.

Future Davenport owned one home in Battle Creek, Michigan, and another in Palestine, Arkansas. Davenport purchased a policy from Farm Bureau that insured the Arkansas house against loss caused by fire, vandalism, or malicious mischief. In September 2010, while Davenport was at her home in Michigan, two individuals broke into the Arkansas home and caused a fire that destroyed the property. Davenport made a claim with Farm Bureau for the loss, claiming the policy limits of $82,000 on the dwelling and $40,000 on the contents. Farm Bureau denied the claim, however, asserting that the home had been unoccupied at the time of the fire and thus the loss was not covered pursuant to the following provision in the insurance policy.

The policy provided that vandalism was not covered if the insured failed to occupy the residence for 30 consecutive days, and no property loss would be covered if unoccupied for 60 days. The term “unoccupied” was defined in the policy as “without human inhabitants, but containing enough furnishings or other personal property to show an intention to return and occupy the dwelling…” Further, the term “you” included the insured, the insured’s spouse and dependent relatives living at the dwelling.

Davenport filed suit against Farm Bureau seeking payment of her claim. Farm Bureau answered, denying that Davenport had coverage because she had failed to comply with all of the terms, conditions, and provisions of the policy. It argued the loss was not covered because the Davenport’s house was vacant and unoccupied for 60 days at the time of the loss. The matter proceeded to a jury trial. After the circuit court denied Farm Bureau’s motion for directed verdict, the jury returned a unanimous verdict in Davenport’s favor.

On appeal, Farm Bureau contended that the “unoccupancy” provision in its insurance policy was a condition of coverage and that the burden was therefore on Davenport to show the existence of coverage. Farm Bureau also maintained that Davenport failed to present sufficient evidence to demonstrate that the property was not unoccupied and therefore failed in her burden of proof.

Before considering whether Farm Bureau’s directed-verdict motion should have been granted, the Court first had to determine which party bore the burden of proof. A condition precedent in an insurance-policy places the burden of proof on the insured; the insurer, however, has the burden of proving an exclusion contained within an insurance-policy provision. Thus, the Court pointed out, it had to first decide whether the “unoccupancy” provision was a condition or exclusion. A “condition precedent” is a condition to be performed before a right of action dependent upon it will accrue, such as proof of loss. An exclusion, on the other hand, exists when coverage generally exists, but some language in the policy eliminates that coverage.

At issue in the instant case was the “unoccupancy” provision in the insurance policy. The provision was under the heading of “CONDITIONS,” but it stated that Farm Bureau “shall not be liable for any property loss if you vacate or fail to occupy the dwelling on the residence premises for a period of sixty (60) consecutive days.” The Court reasoned that this language presupposed that coverage existed but could be eliminated by Farm Bureau based on some action on the part of the insured. Therefore, the Court concluded that the policy language in this case was an exclusion. Having determined that the policy language was an exclusion, Farm Bureau had the burden of proof.

The Court then turned to Farm Bureau’s argument that the circuit court should have granted its directed-verdict motion because, it contended, the proof showed that Davenport’s house was “unoccupied” for more than sixty days. Farm Bureau’s argument hinged on both the meaning and the application of the word “unoccupied.” The Court noted that the meaning of the word “unoccupied” was a question of law, which it had previously defined as “meaning without animate occupants” and had stated that a place of habitation “is ‘unoccupied’ when it has ceased to be a customary place of habitation or abode, and no one is living or residing in it.”

The application of the word “unoccupied,” on the other hand, the Court explained was a question of fact. It is incumbent on the circuit court to direct a verdict when the undisputed facts show unoccupency. However, the question of whether a building is unoccupied at the time of loss is ordinarily one for the jury. As previously mentioned, Davenport owned two homes. Prior to 2009, Davenport and her husband usually spent more time in the Arkansas home than in their Michigan home. In June 2009, Davenport’s husband, Franklin, had a major stroke while they were at their home in Michigan. Afterward, they did not return to the Arkansas home as frequently. The Davenports returned to Arkansas around Thanksgiving of 2009, and again in April 2010. Although the Davenports did not return to the Hudspeth house after April 2010, their son, Kevin, stayed there on at least two occasions—September 10 and 17, 2010. Although Kevin was an adult, he was depicted to the jury as a dependent of the Davenports because he had lived full time at home with his parents from June 2008 through November 2010, and worked only part time. In September 2010, while the Davenports were in Michigan, two individuals broke into the Hudspeth house, stole some items, and set the house on fire. At the time of the fire, the Hudspeth house was fully furnished, was equipped with fully functioning utilities, and food was stocked in the refrigerator and the freezer. On appeal, Farm Bureau argued that there was inadequate evidence of occupancy by an insured. Essentially, it claimed that Kevin Davenport’s two overnight stays were insufficient to render the home “occupied.” However, because the question whether a building is vacant or unoccupied at the time a loss occurs was one of fact for the jury, the Court could not say that the circuit court erred in denying Farm Bureau’s motion for directed verdict.