In Bradley v. Allstate Ins. Co., 2010 U.S. App. LEXIS 9510 (5th Cir. May 10, 2010), the policy's total loss provision was found ambiguous. The case was remanded a factual determination on the amount to which the insureds were entitled for loss of their home.
Hurricane Katrina totally destroyed the insureds' home, leaving only a slab. Allstate determined the dwelling was unlivable. Payments for structural damage under the insureds' flood policy were $63,800 and from their homeowners' policy $41,339.06, for a total of $105,139.06. Allstate later performed a retroactive analysis that appraised the pre-storm market value of the home at $85,000. The insureds indicated at a deposition they intended to rebuild their home, but they also purchased another home for $134,500.
The Allstate policy promised to pay actual cash value if the insured did not repair or replace the damaged property. But if the insured repaired the home within 180 days of the actual cash value payment, additional payments would be made to reimburse for the costs of repair. The policy further stated that in the event of the total loss of the dwelling, the insured would pay the policy limits of $105,600. Elsewhere, however, the policy said loss to property caused by flood would not be covered.
The insureds sued Allstate, claiming they were entitled to policy limits of $105,600. The district court determined that, despite the total loss provision in the homeowners policy, the insureds were only entitled to the actual cash value of their home, which, prior to Katrina, was less than the total amount they received under their homeowners and flood policies. Any further recovery would amount to a double recovery.
On appeal, Allstate argued that the total loss provision was inapplicable where the loss was caused, in part, by a non-covered peril such as flood. The Fifth Circuit determined "total loss" was ambiguous because the provision was susceptible of two possible meanings:
(1) in the event of a total loss, Allstate would pay the agreed full value of the policy as long as a covered loss caused some damage to the property, even if a non-covered peril rendered the property a total loss; or
(2) Allstate was only required to pay the insureds the agreed face value of a policy when the property was rendered a total loss by a covered peril.
The ambiguity was construed in favor of the insureds, entitling them to a recovery of up to policy limits, or $105,600.
Nevertheless, there was still the issue of a possible double recovery. An unresolved question was whether the appropriate measure of the insureds' actual loss was the cost to rebuild or actual cash value. Only if the fact finder determined the insureds intended to reconstruct their home would loss be measured by the cost to rebuild. The actual cost of rebuilding also presented a genuine issue of fact. In the alternative, if the fact-finder concluded that the insureds were not rebuilding, then the starting point for the double recovery analysis would be the actual cash value of their property. As long as the insureds' combined recovery under their homeowners and flood policies was less than their actual loss, then the double recovery rule would not preclude them from receiving additional compensation under their homeowners policy. Finally, deductions had to be made for any excluded loss. Loss attributable to flood also raised a factual question inappropriate for summary judgment.