Reinsurance Law Blog

Reinsurance Law Blog

Ok to depreciate labor costs on property damage claim — Nebraska

Posted in Contractual Liability

In Henn v. American Family Mut. Ins. Co., Henn’s roof was damaged in a hailstorm.  She sued American Family and sought class certification when American Family depreciated labor costs in calculating actual cash value.  Under the policy, the insured will receive an actual cash value payment. If the insured repairs or replaces the damaged property, the insured can recover the difference between the replacement cost value and actual cost value payments. If the insured does not repair or replace the damaged property, the insured is entitled to receive only the actual cash value. The policy does not define “actual cash value” or depreciation, or describe the methods employed to calculate “actual cash value.” The policy also does not explain how American Family determines the difference between replacement cost value and actual cost value.

American Family sought summary judgment and the federal district court certified the following question to the Nebraska Supreme Court:

“May an insurer, in determining the ‘actual cash value’ of a covered loss, depreciate the cost of labor when the terms ‘actual cash value’ and ‘depreciation’ are not defined in the policy and the policy does not explicitly state that labor costs will be depreciated?”

The Nebraska court reviewed the cases in Oklahoma, Arkansas and Kentucky, Pennsylvania, Florida and Indiana.  The court said it can consider any relevant evidence in its calculation of actual cash value, including materials and labor. Further, in that absent specific language in the policy, the insured does “not pay for a hybrid policy of actual cash value for roofing materials and replacement costs for labor.” The property is a product of both materials and labor. Payment of actual cash value, which depreciates both materials and labor, does not underindemnify the insured.

Breach of notification provision, failure to give insurance company prompt notice voids coverage — 8th Circuit, Arkansas

Posted in Contractual Liability

In American Railcar Industries v. Hartford Insurance Company, Tedder, American Railcar’s employee, was hurt while on a break at work.  Tedder sought workers compensation coverage for the claim, which was eventually denied by the Arkansas Workers’ Compensation Commission.  Then, Tedder filed a civil tort action against American Railcar (ARI) in federal court. ARI did not send Hartford a copy of the complaint. Instead, a few weeks after the complaint was filed, ARI asked Hartford’s lawyer in the workers compensation action for any discovery in that action, and attached a copy of ARI’s answer to the request.  Tedder eventually got a $1.5 Million verdict, and then ARI sued Hartford for coverage.

The trial court found that ARI’s failure to tell Hartford of the federal civil action was a violation of the policy conditions, and therefore, no coverage was owed under the policy.  The Eighth Circuit affirmed.

Under Arkansas law, if an insurance policy treats the giving of notice of a lawsuit as a condition precedent to recovery, “the insured must strictly comply with the notice requirement, or risk forfeiting the right to recover from the insurance company” and the insurance company is not required to show prejudice.

Under part four of the insurance policy, ARI was required to “[p]romptly give[Hartford] all notices, demands, and legal papers related to the injury, claim,proceeding or suit.” ARI argues that Tedder’s claims throughout the workers compensation proceedings that he would file a civil action, ARI’s counsel’s September 21 letter to Hartford’s workers compensation counsel, and an ARI employee’s conversation with Diemer all put Hartford on notice that Tedder had filed a civil action against ARI. It is undisputed, however, that ARI did not forward to Hartford all of the notices, demands, or legal papers related to Tedder’s tort action.It therefore did not strictly comply with the policy and forfeited any right to recover from Hartford.

The judgment in favor of Hartford and against the policyholder was affirmed.

Ok to reduce coverage if building is vacant — even if valued policy West Virginia

Posted in Contractual Liability

In Ashraf v. State Auto, the West Virginia Supreme Court upheld a vacancy provision in a fire insurance policy which provides that the insurer is allowed to reduce by 15% the stated amount of coverage payable for the total loss of a building destroyed by fire is enforceable, where the building has been vacant for more than 60 consecutive days prior to the loss. The provision did not conflict with this State’s valued policy statute, W.Va. Code, 33-17-9 [2005], or West Virginia’s Standard Fire Policy, 33-17-2.   Under the Standard Fire Policy, included in the State Auto policy, a
vacancy beyond a period of sixty days authorized a complete denial of liability for the loss. The 15% reduction in the State Auto policy, is, therefore, more favorable to the policyholder than the Standard Fire Policy. And since the reduction applied to the stated value of the building in the policy, the reduction does not subject the parties to a factual dispute over valuation, a dispute intended to be avoided by the adoption of the valued policy statute. Thus, the 15% vacancy reduction was enforceable.

State Auto was off the hook for asbestos testing and removal within the fire damaged structure.  State Auto was not required to provide pollutant removal coverage in addition to the coverage it provided for debris removal. A Pollutant Cleanup and Removal provision in the policy, which covered the expense of extracting pollutants from “land or water” at the insured premises, did not apply to asbestos testing and removal, where the asbestos removed is located within the fire-damaged structure. This Court holds that a Pollutant Cleanup and Removal provision in a fire insurance policy, which covers the expense of extracting pollutants from “land or water” at the insured premises, does not apply to asbestos testing and removal, where the asbestos removed is located within the fire- damaged structure.

Summary judgment to homeowner insurance company reversed on burst pipe claim — 10th Circuit, Utah

Posted in Contractual Liability, Insurance Bad Faith

In Wheeler v. Allstate Insurance Company, Wheeler insured his cabin with Allstate.  A friend stopped by the cabin in the spring and found a pipe had burst and there was water in the basement.  There was extensive damage.  It was determined that the pipe burst two months before discovery and was likely caused by a failed valve.  Allstate said it was unlikely the claim would be covered, and sent an outside adjuster to look at the cabin.  The adjuster  “inspected the cabin for “ten minutes tops” and “took like two or three pictures and left” without inspecting the source of the water.”  Summary judgment was granted to Allstate and the Tenth Circuit reversed.

Mr. Wheeler’s homeowners insurance policy (the “Policy”) contained several provisions concerning coverage for water damage. The language relevant to this case reads as follows:
Losses We Do Not Cover Under Coverage A, Coverage B and Coverage C
A. We do not cover loss to the property described in Coverage A— Dwelling Protection or Coverage B—Other Structures Protection consisting of or caused by the following:
. . . .
3. Seepage, meaning continuous or repeated seepage or leakage over a period of weeks, months, or years, of water, steam or fuel:
a) from a plumbing . . . system; or
b) from, within or around any plumbing fixtures, including, but not limited to . . . sinks or other fixtures designed for the use of water or steam.
. . . .
7. a) wear and tear, aging, marring, scratching, deterioration, inherent vice, or latent defect;
b) mechanical breakdown;
. . . .
d) rust or other corrosion;
. . . .
If any of a) through h) cause the sudden and accidental escape of water or steam from a plumbing . . . system within your dwelling, we cover the direct physical damage caused by the water or steam. If loss to covered property is caused by water or steam not otherwise excluded, we will cover the cost of tearing out and replacing any part of your dwelling necessary to repair the system or appliance. This does not include damage to the defective system or appliance from which the water escaped.

For ease of understanding, we will refer to section A.3 as “Exclusion 3”; to section A.7 as
“Exclusion 7”; and to the final paragraph of section A.7 as the “Exception to Exclusion
7” or the “Exception.”

On April 26, 2011, Allstate sent Mr. Wheeler a letter denying his claim; the letter cited to Exclusion 3.

Mr. Wheeler, the policyholder claimed that the long term damage excluded under Exclusion 3 could be separated from the short term damage he was claiming, based on his expert’s report.  Whether Wheeler could prove short term damages distinct from long term damages was a material fact as to both the breach of contract claim and bad faith claim.  So, summary judgment to Allstate was reversed.

Note the decision is 35 pages plus a dissent.

 

Homeowners policy did not cover privacy, negligence claims where there was no physical injury to person or property — 10th Circuit, Oklahoma law

Posted in Contractual Liability, Duty to Defend

In State Farm Fire v. Dawson, Dawson was sued for negligence and privacy violations after receiving inappropriate photos of an under aged student. Dawson wanted State Farm to pay his defense and any judgment.  But State Farm claimed there was no physical injury to tangible property and no bodily injury such that the policy did not cover the claim.  The trial court agreed with State Farm, and granted State Farm summary judgment.  The Tenth Circuit affirmed.

The policy only provided coverage “If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence. . .”

“bodily injury” is defined as “physical injury, sickness, or disease to a person. . . .”  Importantly, for our purposes, the definition continues, stating that bodily injury does not include “emotional distress, mental anguish, humiliation, mental distress, mental injury, or any similar injury unless it arises out of actual physical injury to some person.” And “property damage” is defined by the Policy as “physical damage to or destruction of tangible property, including loss of use of this property. . . .”

Since there was no evidence of either bodily injury or property damage, summary judgment was affirmed.

Kansas law applied to accident in Kansas — no UM stacking allowed — Missouri

Posted in Contractual Liability

In Kerns vs. Alliance Indemnity Company , Kerns was in a head on accident with an uninsured driver.   Kerns obtained a judgment in Kansas against the operator of the other vehicle for negligence and against the owner of the other vehicle for negligently entrusting the vehicle to the operator at the time of the accident, each of whom was found to be 50% liable.   Because the collision occurred in Kansas, the circuit court applied Kansas law, which bars the stacking of uninsured motorist coverage. The policies provided a maximum payout per insured per accident and Kansas law provides that the number of tortfeasors—one for negligent entrustment and one for negligent driving—is irrelevant.  There was only one accident, and it didn’t matter how many tortfeasors were involved. The policy limit very plainly referred to “all damages . . . arising out of ‘bodily injury’ sustained by any one person in any one accident.”

Though both the owner and the operator were legal causes of Cherity Kerns’s injuries in the sense that both of their negligent acts contributed to her injuries, there was but one event causing the harm overall—the single head-on collision.

Summary judgment against the policyholder was affirmed.

Misrepresentations in insurance application let insurer off the hook for fatal building collapse — Pennsylvania

Posted in Contractual Liability

In Berkely Assurance Company vs Campbell, Campbell was hired to demolish a building in Philadelphia.  During the demolition, an unbraced wall fell onto an adjacent Salvation Army store killing and injuring employees and customers. Berkely issued a policy to Campbell, but claimed it was void because of misrepresentations in the application and because Campbell failed to pay for the policy. The judge ruled the policy was invalid from the beginning, making the arguments about payments moot.

The Application stated:

[t]his application does not bind the applicant nor the company to complete the insurance, but it is agreed that the information contained herein shall be the basis of the contract should a policy be issued.

In the application, Campbell said he documented the conditions of nearby structures before demolition begins, that he had a formal loss control or safety program and a risk manager or safety director; and that he did not use subcontractors. Apparently, these were all lies.

In this case, the deposition testimony of Campbell shows that he not only made misrepresentations in his Application for demolition insurance, but was also aware that he was lying. Specifically, Campbell knew that he had not documented the conditions of nearby buildings prior to demolition, yet answered “Yes” —that he had. He knew that he had no risk manager/safety director, nor any safety measures in place, yet he answered “Yes”. And he wrote “Yes” to two related questions asking whether he had such personnel and safety plans. He also knew that he used a subcontractor to demolish 2138 Market Street, yet answered “No” to the question asking him whether he indeed had such a subcontractor. Indeed, Campbell not only knowingly misstated this fact, but his deposition transcripts show he thoroughly understood the difference between an employee and a subcontractor.

All of the falsehoods are material misrepresentations since each one, “if given, would have influenced the judgment of … [Berkley] in issuing the policy, in estimating the degree and character of the risk, or in fixing a premium rate.”

The court also found Campbell’s misrepresentations were “palpably and manifestly material” such that the Court could  enter judgment without a jury finding on bad faith or fraud.

Habitation or vacancy clause in homeowner’s policy conditions section is an exclusion — Arkansas

Posted in Contractual Liability

In Farm Bureau v. Davenport, 2017 Ark. App. 207, Davenport had 2 houses, one in Michigan and one in Arkansas.  While at the Michigan house, the Arkansas house was broken into and set on fire.  Farm Bureau denied the claim because the house was unoccupied when the house was destroyed. One of the policy conditions, “Vacancy or Unoccupancy” said the policy wouldn’t cover vandalism losses “if you vacate or fail to occupy the dwelling on the residence premises for a period of thirty (30) consecutive days. . .”; and if “you  vacate or fail to occupy the dwelling on the residence premises for a period of sixty (60) consecutive days” the policy wouldn’t cover any property loss. “Unoccupied”was defined as  “being without  human  inhabitants, but containing enough furnishings or other personal property to show an intention to return and occupy the dwelling. . .” “You” and “your” was defined as the named insured, spouse, and dependent resident relatives. When Davenport sued, Farmers admitted the property had been destroyed by vandals, but claimed there was no coverage because the property hadn’t been occupied for 60 days. The jury found for Davenport and the appellate court affirmed.

The insured policyholder has the burden of proof on a condition precedent, but the insurance company has the burden of proof on an exclusion.  Thus an insured policyholder has to prove the loss comes within the policy coverage, and the insurance company has to prove that an exclusion applies.

There is a distinct difference between a condition and an exclusion in an insurance policy. A “condition precedent” in an insurance policy is “a condition to be performed before a right of action dependent upon it will accrue, such as proof of loss[.]” Hill v. Farmers Union Mut. Ins. Co., 15 Ark. App. 222, 225, 691 S.W.2d 196, 198 (1985) (citing Garetson- Greason Lumber Co. v. Home L. & A. Co., 131 Ark. 525, 199 S.W. 547 (1917)). We have held that “the performance of [such condition] should be pleaded in the complaint.” Id. An exclusion, on the other hand, exists when coverage generally exists, but some language in the policy eliminates that coverage. See, e.g., Parker v. S. Farm Bureau Cas. Ins. Co., 104 Ark. App. 301, 304, 292 S.W.3d 311, 314 (2009) (“Once it is determined that coverage exists, it then must be determined whether the exclusionary language within the policy eliminates that coverage.”).

Even though the vacancy clause was under a policy section labeled “Conditions”,  the clause “presupposes that coverage exists but can be eliminated by Farm Bureau based on some action on the part of the insured. Therefore, we conclude that the policy language in this case is an exclusion, despite the caption heading.” Thus, Farm Bureau had the burden of proving vacancy, and the insured did not have to prove occupancy, so the directed verdict was properly denied.

While the meaning of the word “unoccupied” is a question of law, its application is a question of fact.

Ordinarily, however, “the question whether a building is vacant or unoccupied at the time a loss occurs is one of fact for the jury.”

While the Davenports were last at the house in April, 2010, their son stayed there for several days in September, 2010, the same month the house burned down. At the time of the fire, the house was fully furnished, was equipped with fully functioning utilities, and food was stocked in the refrigerator and the freezer. And since there was some evidence of occupancy during September, 2010, the jury had some evidence upon which to base the judgment and the motions for directed verdict and for new trial were properly denied.

Since Farm Bureau had the burden of proof on its occupancy exclusion, the trial court properly instructed the jury on the elements of the claim.  Further, there was no prejudice in failing to instruct the jury on the words inhabit and inhabitant where the plaintiff had read the proposed definitions to the jury, and Farm Bureau got to argue about it in closing argument.

No bad faith for delay in appraisal where there were coverage issues — 10th Cir Oklahoma

Posted in Insurance Bad Faith

This is the second case involving Hayes Family Trust v. State Farm Fire & Casualty.  The first case, involving the appraisal process, is discussed here.  In this case, the policyholder claimed that State Farm acted in bad faith when it delayed the appraisal process because of coverage issues and when it failed to adequately investigate the claim.   Summary judgment to State Farm was affirmed on appeal.

The policyholder argued the appraisal process was mandatory.  But the cited case did not involve a coverage issue.

Further, plaintiffs concede that authority on the topic is sparse, and no reported Oklahoma or Tenth Circuit case holds that an insurer’s denial or delay of an appraisal based on a coverage question constitutes bad faith. Because there was a legitimate dispute as to whether an appraisal was proper, we cannot say that State Farm acted in bad faith. Plaintiffs have not shown that State Farm relied on some reason other than its legitimate dispute for its actions.

As to the failure to investigate the claim, the policyholder offered no evidence that further investigation would have produced additional relevant information or led to different conclusions.

As a result, summary judgment was proper.  The case is not published.

Faulty house inspection did not cause property damage 11th Cir, Florida

Posted in Duty to Defend

In Auto-Owners Insurance Co. v. Ralph Gage Contracting Inc., the Kjellanders sued Gage after he inspected a house they wanted to buy and gave it a positive report.  The Kjellanders claimed the house had mold and a bad HVAC system, and they wouldn’t have bought it if they had known about the problems — which the inspector should have discovered.  But since the inspection did not cause the property damage, Gage’s insurance did not cover the claimed loss.

Under the terms of the Policy, Auto-Owners agreed to pay “sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” In pertinent part, the Policy provided coverage for “property damage” only if it was “caused by an ‘occurrence.’” The Policy defines “property damage” this way:

a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.

An “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” In a case like this one — where the term “accident” is undefined by the Policy — the Florida Supreme Court has said that “accident” means “not only ‘accidental events,’ but also damages or injuries that are neither expected nor intended from the viewpoint of the insured.”

The plain language of the Policy requires unambiguously a causal link between the alleged “property damage” and an “occurrence.” Here, the only asserted “occurrence” is Gage’s alleged negligent inspection. Thus, to show that their claim is within the Policy’s coverage, the Kjellanders must demonstrate that Gage’s negligent inspection caused “property damage” within the meaning of the Policy.

The property was damaged before the inspection, not because of the inspection.  Thus, there was no coverage for the loss. The case is not published.

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