The Texas Court of Appeals decided there was no duty to defend claims of both negligence and negligent misrepresentation in Branham v. State Farm Lloyds, 2012 Tex. Ct. App. LEXIS 7736 (Tex. Ct. App. Sept. 12, 2012).
The insured sold her home to the McCulloughs. After moving into their new home, the McCulloughs sued the insured, alleging she falsely represented that there was no previous flooding or water penetration into the home nor termite problems. The complaint further alleged that the insured failed to disclose the previous problems in the home. Causes of action alleged against the insured included negligence for failing to properly disclose the condition of the home and negligent misrepresentations by supplying false information.
The insured tendered to State Farm, but it refused to defend. The insured then sued State Farm. The parties filed competing motions for summary judgment. State Farm argued the underlying complaint did not allege damages arising from a covered occurrence or property damage. Further the policy excluded intentional conduct. The trial court granted State Farm's motion.
The Court of Appeals affirmed. The insured argued she could have "negligently" forgotten about the prior damage to her home. The underlying complaint, however, alleged the insured made false representations and made cosmetic repairs to conceal the prior damage. The mere characterization of negligence, alternatively made, was insufficient to convert claims based on knowing misrepresentation into a claim for recovery of property damage caused by an accident within the meaning of the insurance policy.
