The insurer properly denied coverage for a bulge in a warehouse wall that the insured claimed was caused by Hurricane Ike. Russell v. Scottsdale Ins. Co., 2014 U.S. Dist. LEXIS 143882 (S.D. Tex. Sept. 30, 2014).
Hurricane Ike displaced metal roof coverings on the insured's warehouse, causing interior water damage to several rooms. Scottsdale eventually paid $84,820.36 for the loss of the roof, less the deductible. The parties disagreed on whether a horizontal bulge on the north wall of the warehouse was also caused by the hurricane. The bulging portion of the wall was not cracked, but cracks were seen around the corners and windows. The insured admitted to an engineer retained by Scottsdale that the cracks in the exterior walls had been filled with caulking on several occasions prior to Hurricane Ike.
Scottsdale denied coverage for the damage to the north wall under exclusions for soil sinking, rising, or shifting and for damage from faulty, inadequate or defective design, construction, and repair.The insured later sent a demand for $800,000 for the damage to the wall. A suit was eventually filed by the insured.
Thereafter, an appraisal was requested by the insured. Two appraisers agreed on an award of $112,004.99 for the damaged roof. Scottsdale tendered this amount less the deductible and the excess amount paid over the cost of the temporary roof.
The appraisers could not agree on the amount of loss for the north wall. Scottsdale's appraiser and the umpire, however, agreed to an amount of $204,377.51.
Subsequent investigations located pictures that showed a bulge was present prior to Hurricane Ike. Nevertheless, the insured insisted that the north wall was not damaged before Hurricane Ike. After examining the engineers' reports, the umpire and Scottsdale's appraiser agreed to an award for the north wall of $153,283.13, equal to the actual cash value of the damage to the north wall. The insured refused payment and demanded $500,000 for the north wall plus costs and fees of litigation.
On Scottsdale's motion for summary judgment, the court found that the breach of contract claim against Scottsdale failed. When an insurer tenders the amount of the appraisal award, there is no breach of contract even if the payment is refused by the insured. Nor was Scottsdale in bad faith because it relied on expert reports in denying coverage. Summary judgment was granted to Scottsdale.