California Court: Appraisers Cannot be Directed to Assign Loss Values to Undamaged or Non-Existent Items in the Insured’s Scope

Posted on July 21, 2015 by Dick Bennett

It is axiomatic that the appraisers’ task is solely to determine the amount of loss, as opposed to coverage or liability. In Li-Lin Sung v. California Capital Ins. Co., 2015 WL 3797827, 2015 Cal. App. LEXIS 530 (Jun. 18, 2015), a unanimous panel of California’s Court of Appeal recently held that that necessarily entailed assessing whether components of the policyholder’s claim were actually damaged or even in existence at the time of the loss. According to the opinion, it was error to compel the appraisers to assign loss values to each and every item the insured claimed — such as damage to non-existent windows or to a fourth story on a three-story building — because assessing the existence and nature of any damage is an integral part of the appraisers’ job.

shutterstock_86367859 The policyholder owned an apartment building in Oakland that was damaged by fire in November of 2010. The blaze was confined to one unit, and the insurer valued the loss at approximately $180,000. The insured contended that there was extensive fire and smoke damage to five other apartments, however, requiring that all six units be completely gutted and rebuilt and that the building’s exterior be renovated and repainted. Her claim exceeded $800,000.

The policyholder petitioned the court to compel appraisal, and the judge granted the petition and directed the appraisers to prepare separate valuations for: (1) all of the items of loss claimed to have been damaged by the insured; and (2) all of the items of loss admitted to have been damaged by the carrier. The panel’s award had replacement cost valuations of $813,884.89 and $190,505.21 respectively. Read more ›

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Tagged with: California
Posted in Arbitration and Appraisal, Fire, Investigation, Loss Adjustment

Sixth Circuit: A Michigan Collapse Extension Overrides Exclusions for Cracking and Defective Design

Posted on July 15, 2015 by Dick Bennett

In Joy Tabernacle — The New Testament Church v. State Farm Fire & Cas. Co., 2015 WL 3824733, 2015 U.S. App. LEXIS 10707 (6th Cir., Jun. 22, 2015), a unanimous panel of the federal Court of Appeals recently held that a collapse extension of coverage negates a policy’s exclusions for cracking and faulty workmanship and design because more specific provisions of a contract of insurance are controlling over general ones. The court noted that any collapse necessarily entails “the cracking of beams and walls” and that giving effect to the exclusion under those circumstances would render the extension nugatory. In addition, the defective design exclusion was ineffective because the collapse extension specifically recited that collapse caused at least in part by one of its enumerated perils was covered even if faulty workmanship and design was a contributory factor.

The insured was a Presbyterian church in Flint, Michigan. On December 15, 2012, the plaster ceiling of the sanctuary of the congregation’s 85-year-old building collapsed. The insurer made initial payments for clean-up costs, but after a series of inspections were conducted, it elected to deny the claim, and litigation ensued. The district court granted summary judgment to the carrier, and that led to an appeal. Read more ›

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Tagged with: Michigan, Sixth Circuit
Posted in Collapse, Exclusions, Faulty Workmanship or Design, Hidden Decay, Settling or Cracking

Tennessee Court Weighs in on Whether Arson is a Species of Vandalism and Malicious Mischief

Posted on July 13, 2015 by Dick Bennett

Last month in what was a case of first impression in Tennessee, a unanimous panel of the state’s intermediate level appellate court joined those jurisdictions that have concluded that arson does not constitute a type of vandalism and malicious mischief. As is typically the case, the issue arose after a fire destroyed a vacant building and the carrier denied liability because the policy excluded loss by vandalism and malicious mischief during vacancy. Southern Trust Ins. Co. v. Phillips, 2015 WL 3612989, 2015 Tenn. App. LEXIS 457 (Tenn.Ct.App., Jun. 10, 2015) contains a helpful canvas of state law on both sides of the question, but the holding itself is obviously far less useful for insurers.

shutterstock_37775893 The insured owned a home in Lake City that was heavily damaged by fire on February 27, 2013. It was undisputed that the dwelling was vacant at the time of the blaze and that the fire was caused by arson. The insurer denied liability and filed a declaratory judgment action, seeking an adjudication that the loss was excluded. After cross-motions for summary judgment were filed, the trial court held that the contract of insurance was ambiguous and construed it in favor of coverage.

The policy excluded loss by “vandalism and malicious mischief, theft or attempted theft if the dwelling has been vacant for more than 30 consecutive days immediately before the loss,” and the carrier contended that vandalism and malicious mischief encompassed arson. The insured argued that arson did not fall within the meaning of those two (undefined) terms, pointing to the fact that Coverage C for loss to personal property and the section that addressed loss to trees and shrubs both afforded protection for damage by “fire or lightening” on the one hand and vandalism and malicious mischief on the other, thereby differentiating between the two perils. Read more ›

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Tagged with: Tennessee, Theft of Attempted Theft, Vandalism and Malicious Mischief
Posted in Arson, Arson and Fraud, Exclusions, Fire, Vacant or Unoccupied, Vandalism

Seventh Circuit Holds Insured Entitled to a New Roof for Purely Cosmetic Hail Damage

Posted on July 10, 2015 by Dick Bennett

The Seventh Circuit is becoming a difficult venue for insurers. In November we reported that the Court of Appeals had held that the phrase “continuous or repeated exposure” in definition of occurrence meant that a continuous trigger theory applied, leaving the carrier exposed to a claim for 11 years of gradual water damage that was first reported 5 years after the last insurance policy expired. Last month, in Advance Cable Co. v. Cincinnati Ins. Co., 2015 WL 3630699, 2015 U.S. App. LEXIS 9805 (7th Cir., Jun. 11, 2015), the same court held that cosmetic hail damage to a roof that had no affect on the structure’s functionality or life expectancy nonetheless constituted “direct physical loss” and required the insurer to pay for a replacement.

shutterstock_88109659 Advance Cable had a building in Middleton, Wisconsin that sustained hail damage on April 3, 2011. The insurer’s claim representative inspected the roof and observed no damage. Six months later, the policyholder was contemplating a sale, and the buyer had the structure looked at. Its inspector stated that there was “definitely hail damage,” and the insured asked the carrier to reopen its claim. The resulting report by the insurer’s representative found hail dents up to 1” in diameter but concluded that these neither “affect[ed] the performance of the [roof] panels” nor “detract[ed] from the panels’ life expectancy.” There was no evidence of record to the contrary. Read more ›

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Tagged with: Accidental Loss or Damage, Seven Circuit, Wisconsin
Posted in Direct Physical Loss or Damage, Hailstorm

New York Court: Broadly-Worded Flood Limit “Meaningless” Unless it Applies to Any Kind of Loss Caused by Flood

Posted on July 8, 2015 by Dick Bennett

Yesterday in El-Ad West LLC v. Zurich American Ins. Co., 2015 WL 4078762, 2015 N.Y. App. Div. LEXIS 5753 (N.Y.App.Div., Jul. 7, 2015), a unanimous panel of New York’s intermediate level appellate court held that a flood sub-limit capped all loss caused by flood, without regard to whether it was physical damage to property or a “downstream” financial loss such as delay in completion. In the words of the opinion, reading the contract of insurance in such a way as to find that the flood sub-limit did not apply to delay in completion losses “would render the flood limit meaningless with respect to that coverage.” The panel thereby affirmed a Superstorm Sandy decision that we reported on in July of last year; it was a case of first impression in New York.

shutterstock_39408994 The policyholder was a developer that was converting an office building in Tribeca in lower Manhattan into luxury condominiums when Superstorm Sandy flooded the premises in October of 2012. The storm caused more than $20 million in property damage and delay in completion loss. The insured had a builder’s risk policy with a $115 million overall limit of liability, but there was a $7 million sub-limit for delay in completion and a $5 million sub-limit for “all losses or damages arising during a continuous condition as defined in the definition of FLOOD.”

The insured contended that it was entitled to recover $12 million, arguing that the delay in completion loss was not subject to the flood sub-limit. The insurer disagreed, and litigation ensued. On June 27, 2014, the trial court agreed with the carrier and granted partial summary judgment. As the judge’s opinion explained, the broad definition of what kind of loss was subject to the $5 million flood sub-limit meant that “a loss that would not have occurred but for a flood is subject to a $5 million annual aggregate limit, without regard to the type of loss suffered since the expression ‘all losses or damages arising during [a flood]’ clearly does not exclude non-physical losses.” Read more ›

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Tagged with: New York
Posted in Builders' Risk, Delay in Completion, Flood, Superstorm Sandy

Texas Court Rejects Ambiguity Arguments Bottomed on a Single Phrase

Posted on July 7, 2015 by Dick Bennett

shutterstock_235607581 Last Thursday in King v. Burwell, 2015 WL 2473448, 2015 U.S. LEXIS 4248 (U.S., Jun. 25, 2015), Chief Justice Roberts explained that “[a] provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory scheme” when construing a law. In the same fashion, it is inappropriate to find ambiguity residing in a single phrase in a contract of insurance when the meaning can be clarified by referring to the policy as a whole. That was the teaching of a recent opinion by a unanimous panel of Texas’ intermediate level appellate court in 3109 Props. L.L.C. v. Truck Ins. Exch., 2015 WL 3827580, 2015 Tex. App. LEXIS 6146 (Tex.Ct.App., Jun. 18, 2015).

The insured was filmmaker Richard Linklater, the director of over a dozen films including Matthew McConaughey’s debut, the 1993 coming of age comedy Dazed and Confused. Linklater had a $500,000 archive of his various film projects in a building in Paige, Texas. In September of 2011, that was destroyed by the Bastrop County Complex Fire, a 32,000-acre inferno that did $325 million in insured property damage in southeast Texas; it is still the state’s most destructive blaze. Read more ›

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Tagged with: Declarations PAge, Newly Acquired or Constructed Property, Texas
Posted in Ambiguity, Fire, Newly-Acquired Property, Wildfire

Oklahoma Holds Question of Whether Fracking Causes Earthquakes is for the Courts to Decide.

Posted on July 2, 2015 by Dick Bennett

The issue of whether hydraulic fracturing or “fracking” causes earthquakes has first-party insurance implications because policies typically exclude damage from tremors attributable to man-made causes as opposed to purely unnatural ones. We’ve discussed the issue in two recent posts after Insurance Commissioners in Oklahoma and Pennsylvania publicly warned carriers against denying earthquake claims on the basis that they were attributable to oil and gas drilling. The jury is still out on the issue, but scientific evidence linking fracking to the tremors is accumulating rapidly.

shutterstock_140632915 At the present time, Oklahoma is at the “sharp end of the spear” with respect to this issue because the state experienced fully 567 quakes of Magnitude 3.0 or greater in 2014. That is the more than in the proceeding 30 years combined, and Oklahoma is on track to see fully 1100 such earthquakes n 2015! When he released his bulletin in March, the state’s Insurance Commissioner stated that his office would assume that the state’s quakes were not man-made “[u]ntil a legal ruling is made.” It now appears that just such a ruling may well be coming in the Sooner State.

Two days ago in Ladra v. The New Dominion, LLC, 2015 OK 53, 2015 WL 3982748, 2015 Okla. LEXIS 71 (Okla., Jun. 30, 2015), a unanimous state Supreme Court cleared the way for a lawsuit over causation to go forward. The plaintiff contends that disposal of the massive amounts of wastewater from fracking by injection into deep wells caused a serious 2011 earthquake. That matter, as well as other litigation that the decision will inevitably spawn, will be closely followed by both the energy industry and by fracking opponents, and it should be monitored by insurers as well given what the court called the “dramatic increase in the frequency and severity of earthquakes” in Oklahoma and other frack-high jurisdictions and the consequent ramping-up of resulting insurance claims. Read more ›

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Tagged with: Fracking, Hydraulic Fracturing, Oklahoma
Posted in Causation, Earthquake, Homeowners Coverage, Regulation

Missouri Court: “Equivalent” Requires that Replacement Siding be Both Equal in Value and Virtually Identical

Posted on June 30, 2015 by Dick Bennett

In December, we published a post about a Minnesota Supreme Court case that held that under a replacement cost policy, the phrase “comparable material and quality” meant that all of the siding on 20 buildings had to be replaced to avoid a color mismatch, even though less than 2% had actually been damaged by hail. According to the court, that was necessary to ensure a “reasonable” color match. Last week, a unanimous panel of Missouri’s intermediate level appellate court reached a similar conclusion under a replacement cost contract of insurance that required replacement “for equivalent construction and use.” In Alessi v. Mid-Century Ins. Co., 2015 WL 3874799, 2015 Mo.App. LEXIS 679 (Mo.App., Jun. 23, 2015), the judges held that the word “equivalent” requires that replacement be both “equal in value” and “virtually identical.”

shutterstock_74756989 The policyholder owned a home in St. Charles that sustained siding damage in a hailstorm in April 2012. The damage was confined to the home’s northern side, and the carrier paid the actual cash value for replacement of all of the siding on that portion of the building. Because the original siding was no longer manufactured, however, the insured contended that she was entitled to recover for replacing the siding on the entire structure, and she brought suit after the insurer refused. Read more ›

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Tagged with: Equivalent Construction and Use, Like Kind and Quality, Missouri
Posted in Direct Physical Loss or Damage, Hailstorm, Replacement Cost, Valuation

New York Court: Undefined Word “Occurrence” in a Deductible Provision Must be Construed by the Finder of Fact

Posted on June 25, 2015 by Dick Bennett

Many property policies expressly define the term “occurrence” to encompass a series of similar and related events. Last month, however, in Rokeach v. Hanover Ins. Co., 2015 WL 2400097, U.S. Dist. LEXIS 6580 (May 19, 2015, S.D.N.Y.), a New York federal court held that when the word is employed in the policy’s deductible provision without either emphasis or quotation marks, it is effectively undefined, and the question of whether it should be understood to denote a single occurrence or a series of multiple occurrences must be determined by the jury.

shutterstock_35357998 The policyholder operated a welding business in Uniondale, and the company stored scrap metal in an ungated yard on the property. As summarized by the court, the undisputed facts were as follows:

Thieves collected and carted away multiple separate loads of Mr. Rokeach’s property between mid-June 2011 and the date of their arrest on July 21, 2011. The evidence suggests that the thefts were linked – the two thieves who were ultimately arrested were seen on the property multiple times, the thieves “staged” material during some trips for removal in other trips; they used the same means to steal the property – pulling up in the same truck in the same location multiple times to load the material. Read more ›

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Tagged with: New York
Posted in Ambiguity, Deductible, Occurrence, Theft or Dishonesty

Washington Supreme Court Misses Opportunity to Clarify the Meaning Of “Collapse”

Posted on June 23, 2015 by Craig Bennion

Washington State has long been a jurisdiction with no judicial pronouncement as to the meaning of the term “collapse” in a property insurance policy, but that changed last Thursday when the state’s Supreme Court issued its decision in Queen Anne Park Homeowners Ass’n v. State Farm Fire & Cas. Co., 2015 WL 3795796, 2015 Wash. LEXIS 695 (Wash., Jun. 18, 2015). The court found that the term, as used in the insurance policy before it, was ambiguous. It then adopted a definition of “collapse,” but its use of uncertain terms in that definition may only lead to further ambiguity, and the likely result will be yet more expensive litigation concerning older policies that contain similar “collapse” language.

The Queen Anne Park Condominium in Seattle was insured by a State Farm policy against “accidental direct physical loss” unless excluded. The policy extended coverage to “any accidental direct physical loss to covered property involving collapse of a building or any part of a building caused by . . . hidden decay.” The coverage extension also stated that “collapse does not include settling, cracking, shrinking, bulging or expansion.” Other than that, however, the policy left the term “collapse” undefined. Read more ›

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Tagged with: Ninth Circuit, Washington
Posted in Ambiguity, Collapse, Hidden Decay