• Wrongful Foreclosure Not Covered Under Coverage A or Coverage B of Liability Policy
  • May 12, 2017
  • Law Firm: Martin Disiere Jefferson Wisdom L.L.P. - Houston Office
  • The Fort Worth Court of Appeals recently affirmed summary judgment in favor of State Farm in a case involving an alleged wrongful foreclosure. In Eugene and Mary McClain v. State Farm Fire & Cas. Co., 02-16-00315-CV, 2017 WL 817152 (Tex. App.—Fort Worth Mar. 2, 2017, no. pet. h.), State Farm's insureds, the McClains, sold a home to the Ramirezes for $60,500 and executed a promissory note which specified monthly payments over 18 years. Eight years into the transaction, the McClains accelerated the note and foreclosed on the property, ultimately buying it back at the foreclosure sale for $42,000. The Ramirezes sued the McClains, setting forth a detailed timeline of the parties' dealings and alleging the McClains made verbal demands, slurs, and engaged in unfair debt collection practices including intimidation and threats as part of their wrongful foreclosure process. The Ramirezes continued to occupy the property for at least four months after the foreclosure sale and repurchase by the McClains.

    The McClains sought a defense under their umbrella policy issued by State Farm. State Farm refused to defend them, and the McClains defended themselves, ultimately going on to win the case. In the process, the McClains incurred $36,000 in defense costs and they sued State Farm for these costs, alleging State Farm should have defended the suit. State Farm won summary judgment in the state district court, and this appeal followed.

    The Ft. Worth Court of Appeals examined potential coverage for the Ramirezes' allegations under the Texas eight-corners rule, looking to both Coverage A (bodily injury) and Coverage B (personal injury). The McClains argued the suit should have been defended under Coverage B because some of the allegations fell within the “wrongful eviction/wrongful entry” aspect of “personal injury” under Coverage B. Notably, this part of the definition requires the insured to be acting as an owner, landlord, or lessor. The McClains relied heavily on the lack of specific dates in the petition, arguing some of the alleged acts could have taken place after the foreclosure, at which time the McClains became the owners of the property. The court acknowledged that under the rule of liberal construction, when the dates of the critical allegations cannot be determined, and they can reasonably be inferred to have occurred at a time that would create a duty to defend, then the court must find a duty to defend. But here, the petition set out a very clear timeline of when the events in question occurred, ending with the foreclosure, and thus prevented a reasonable inference that any of the wrongful acts alleged took place while the McClains were acting as owners of the property. Therefore, there was no duty to defend under Coverage B.

    The McClains also argued that the Ramirezes' allegation they had suffered mental anguish should bring the suit within Coverage A. The court again disagreed noting the definition of “bodily injury” expressly includes mental anguish caused by the bodily injury, but does not create coverage for a “stand-alone” claim for mental anguish.

    Editor’s Note: Although the opinion is unpublished, this is a potentially significant ruling because it helps to establish the boundaries of liberal construction when no dates of specific wrongful acts are expressly alleged in a petition being examined under a liability policy. The court took a common-sense approach and concluded that if there are enough clues in the petition to infer that event A must have occurred before event B, and that timeline is determinative of coverage, then the petition is not ambiguous in that regard. The lesson learned is that when a petition includes a detailed recounting of events in chronological order, express dates may not be necessary to make certain coverage determinations. And, the argument that “the petition is silent as to key dates; therefore, you must find in favor of coverage” may fall flat.