Opinion ID: 2831441
Heading Depth: 2
Heading Rank: 2

Heading: The “Materiality” Argument

Text: The Court also attempts to distinguish Hernandez, PAJ, Prodigy, and Lennar on the ground that the “breaches” in those cases were immaterial while the breach in this case is material. This effort fails for two reasons. First, the “materiality” of the breach is only relevant if (1) there is, in fact, a breach and (2) the non-breaching party relies on the breach to avoid performance under the contract. But neither is true here, and nor were they true in Hernandez, PAJ, Prodigy, or Lennar. In all of these cases, the issue was not whether the insured’s conduct excused the insurer from fulfilling its coverage obligations under the contract; it was whether the insurer had a coverage obligation under the contract at all. In most of these cases, including this one, the insurer did not even allege that the insured had breached the contract. Instead, in each of these cases, the insurer argued that the policy simply did not cover the loss. Second, even if there were a breach here, the “materiality” of the breach (or lack thereof) is indistinguishable from the materiality of the “breaches” in Hernandez, PAJ, Prodigy, and Lennar. As the Court points out, in all four cases, we determined whether the insured’s “breach” was “material” by examining whether the “breach” deprived the insurer of the benefit that it could have reasonably anticipated from full performance—i.e., the benefit of the bargain. See Lennar, omitted); see also Prodigy, 288 S.W.3d at 384–88 (Johnson, J., joined by Hecht and Willett, JJ., dissenting); PAJ, 243 S.W.3d at 637–39 (Willett, J., joined by Hecht, Wainwright, and Johnson, JJ., dissenting). In short, when a party fails to fulfill a condition precedent to another party’s obligation, the other party has no duty under the contract to perform that obligation, regardless of whether the contract has been breached. See Solar Applications, 327 S.W.3d at 108; RESTATEMENT (SECOND) OF CONTRACTS § 225(1), (2). The majorities’ use of the material-breach analysis in PAJ and Prodigy confused failure to fulfill a contractual condition precedent with a mere breach of a contractual covenant. 20 413 S.W.3d at 755 (“Generally, one party’s breach does not excuse the other's performance unless the breach is material. One factor in determining materiality is ‘the extent to which the nonbreaching party will be deprived of the benefit that it could have reasonably anticipated from full performance.’”); Prodigy, 288 S.W.3d at 377 (“an immaterial breach does not deprive the insurer of the benefit of the bargain and thus cannot relieve the insurer of the contractual coverage obligation.”) (quoting PAJ, 243 S.W.3d at 631, citing Hernandez, 875 S.W.2d at 692); PAJ, 243 S.W.3d at 631 (same); Hernandez, 875 S.W.2d at 692 (“A fundamental principle of contract law is that when one party to a contract commits a material breach of that contract, the other party is discharged or excused from any obligation to perform.”). In each of those cases, we held that the “breach” was not “material” because it did not deprive the insurer of the benefit of the bargain, since the insurer was not prejudiced by the insured’s conduct. See Lennar, 413 S.W.3d at 755 (holding that insurer was not deprived of the benefit of full performance because the insurer was not harmed by the insured’s unapproved settlement); Prodigy, 288 S.W.3d at 382 (holding that insurer was not deprived of the benefit of full performance because the insurer was not harmed by the untimely notice); PAJ, 243 S.W.3d at 636–37 (holding that insurer was not deprived of the benefit of full performance because the insurer was not harmed by the untimely notice); Hernandez, 875 S.W.2d at 692 (holding that insurer was not deprived of the benefit of full performance because the insurer was not harmed by the insured’s unapproved settlement). In short, we equated materiality with prejudice. See Lennar, 413 S.W.3d at 755; Prodigy, 288 S.W.3d at 382; PAJ, 243 S.W.3d at 633–34, 636–37; Hernandez, 875 S.W.2d at 692. Under that test, the vacancy clause at issue in this case is equally immaterial because the insured’s failure to reside in the house did not prejudice the insurer. Farmers, in fact, has expressly 21 conceded this point. Because the vacancy of the house did not contribute to cause the fire damage, the interest that the vacancy clause was designed to protect (minimizing the fire risks for a vacant dwelling) was not injured here. But for the same reasons, the interest that the prompt-notice provisions in PAJ and Prodigy were designed to protect (ensuring adequate time to gather information and prepare a defense) was not injured, and the interest that the consent provision in Hernandez and Lennar were designed to protect (the insurer’s subrogation rights) was not injured. In sum, if the “materiality” test the Court announced in Hernandez, PAJ, Prodigy, and Lennar is correct, the Court’s holding today cannot be. If the Court’s holding today is correct, and I agree that it is, the “materiality” test articulated in those four cases cannot be. As the court states, “[a]t bottom this case is not about breach, it is about what coverage Greene purchased and Farmers agreed to provide. Greene seeks to have us re-write the insurance policy under the guise of ‘construing’ it so Farmers provides coverage it did not agree to provide, and Greene receives coverage she did not contract for.” Ante at __. I agree, but this was equally true in Hernandez, PAJ, Prodigy, and Lennar.26