North Carolina Appellate Court Affirms Summary Judgment In Favor Of Insurer Based Upon Vacancy Provisions

In Holmes v. North Carolina Farm Bureau Mutual Insurance Co. Inc., the court analyzed the vacancy provision of an office-lessor’s insurance policy. 2014 N.C. App. LEXIS 357 (April 15, 2014).  Holmes owned office buildings at 5415 Friendly Avenue and 5411 Friendly Avenue in Greensboro, North Carolina.  In November 2011, someone stole eight heating and air conditioning units from outside 5415 Friendly Ave.  Holmes informed the police, but the perpetrator was never found.  Holmes also made a claim to defendant North Carolina Farm Bureau Mutual Insurance Company (“Farm Bureau”) under the office-lessor policy.

Farm Bureau denied coverage for the claim based on the vacancy provision of Holmes’s policy.  The policy stated that a building is vacant “when 70% or more of its total square footage: (i) is not rented; or (ii) is not used to conduct customary operations.”  The policy also stated that “[w]hen this policy is issued to the owner of a building, building means the entire building.”  The policy further provided the following:

b.            Vacancy Provisions

If the building where loss or damage occurs has been vacant for more than 60 consecutive days before that loss or damage occurs:

(1)          We will not pay for any loss or damage caused by any of the following even if they are Covered Causes of Loss:

* * *

(e)          Theft;

The court engaged in an analysis of whether the units in 5415 Friendly Ave. were rented or unoccupied in the time leading up to the alleged loss.  Unit A was occupied and constituted 16% of the total square footage of the building.  Unit C contained a 144 square foot storage unit that one of the tenants of 5411 Friendly Ave. used to store documents, but the remainder of the unit was not rented.  The tenants had a key to the entire unit, but used only the 144 square foot storage unit for the storage of their documents. Holmes contended that because the tenants of 5411 Friendly Ave. had access to the entirety of Unit C, the whole unit should be considered occupied, even though the evidence showed the tenants used only the 144 square foot storage unit.  Farm Bureau contended that only the 144 square feet in use by the tenants should be counted toward the percentage of the building that was not vacant.

The North Carolina court found that Holmes’s interpretation was “contrary to the plain language of the contract” and that the policy language directs the court to consider only the portion of the total square footage that was actually used, not what amount could have been used.  Without counting the entirety of Unit C, the total amount of square footage used in the building was less than 30%, so the building was considered vacant under the policy.  Thus, the court granted summary judgment in favor of Farm Bureau. The court found that Holmes was not entitled to compensation for his loss, and that Farm Bureau did not breach its contract by refusing to pay to replace the stolen heating and air conditioning units.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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