Insurance Law Hawaii

Appraisal Award for Damaged Roof Tiles Challenged

    The district court denied Travelers' motion for summary judgment and granted the insureds' motion in part regarding replacement of roof tiles damaged in a hail storm. Bertisen v. Travelers Home & Marine Ins. Co., 2023 U.S. Dist. LEXIS 159649 (D. Colo. Sept. 8,2023). 

    On May 8, 2017, the insureds' home was struck by a hailstorm that damaged their property. A Travelers inspector found damage to metal roof components, a deck, patio furniture and gutters. A partial payment of $6,381.04 was made. A further payment was made for personal property damaged by the storm. Travelers disputed that the hailstorm caused damage to all of the roof tiles. 

    Travelers' adjustor reinspected the property and observed additional damages caused by hail and another payment of $6,605.22 was issued. 

    The insureds demanded an appraisal regarding damaged roof tiles. Travelers agreed, but reserved for future resolution all coverage and causation defenses. Travelers' appraiser found approximately 191 cracked/fractured tiles. The appraiser noted that the manufacturer of the roof tiles not longer made such tiles. The insureds' appraiser found more damage and the two appraisers could not agree on the amount of loss. Linda McGown was appointed umpire and issued a total award with replacement cost value at $157,141.19 and actual cash value at $136,297.85. She noted that the replacement cost value was based on the fact that replacement tile could not be matched with the damaged tile. Travelers disputed the award because some damage was due to wear and tear. It made a total payment of $63,355.07. 

    The insureds filed suit. Ms. McGowan was deposed and testified that the appraisal award included the cost to replace roof tiles that were damaged apart from the hailstorm, including damage caused by wear and tear and other damage prior to the policy period. 

    The insureds and Travelers filed cross motions for summary judgment. Travelers did not seek to overturn the appraisal award. Travelers' motion seeking to dispose of the insureds' breach of contract claim was denied. Travelers could not challenge an award taking causation into account once the appraisal award was issued without moving to vacate, set aside, or modify the award. It was undisputed that Travelers had not paid to replace any roof tiles, including the 191 that its appraiser found were damaged by the hailstorm. 

    Further, Travelers could not challenge the appraisal panel's coverage determination on the cosmetic matching issue and the appraisal award was not binding. Travelers had not presented any motion to challenge the arbitration award. It was therefore confirmed by the court. 

    Turning to the insureds' motion, the court found Travelers had breached the policy by not payment for the replacement of 191 roof tiles. On the cosmetic matching issue, the court agreed whether the matching tile was covered under the policy was a coverage issue for the court to determine. Therefore, the motion for the remainder of the breach of contract claim was denied. 

    Finally, Travelers' motion to dismiss the insureds' bad faith claim was denied. There was no dispute that the hailstorm damaged at least some of the tiles and Travelers admitted it had not paid for any tiles. 

Insured Makes Sufficient Claim For Actual Cash Value Payment

    The court denied, in part, the insurer's motion for summary judgment that argued the insured made an insufficient showing of entitlement to Actual Cash Value (ACV) payments under the policy. RR Restoration, LLC v. Empire Indem. Ins. Co., 2023 U.S. Dist. LEXIS 129388 (M.D. Fla. July 16, 2023).

    Amblewood Condominium suffered damage from Hurricane Irma. Amblewood held a property policy with Empire that covered nine buildings, which with a separate insurance limit, premium and deductible. 

    A week after Hurricane Irma hit, Amblewood filed a claim for property damage. Two years later, Amblewood assiigned its rights under the policy to RR Restoration. As assignee, RR Restoration submitted nine anticipated repair estimates, one for each damaged building. The estimated cost for all nine repairs totalled $5.7 million. Each invoice was for repairs not yet made. Empire responded that submission of anticipated repairs alone did not trigger the Replacement cost provision under the policy, explaining that the policy did not cover anticipated repair costs. RR Restoration filed a complaint for breach of contract. Empire moved for summary judgment.

    The policy provided Replacement Cost Value for the full cost of repair or replacement without deduction for depreciation if an insured actually replaced or repaired the damage property. ACV recognised that the insurer was entitled to deduct reasonable depreciation from the value of a loss. The purpose of ACV was to place the insured back in the position she enjoyed prior to loss. Empire argued that RR Restoration could not establish a breach of the policy because the claim was based solely on RCV and no repairs were ever made. 

    Because there was no genuine issue of material fact that no actual repairs were made under the plain language of the policy, there was no breach of the policy. Therefore, Empire was entitled to summary judgment with respect to any claim for RCV damages.

    RR Restoration argued that a jury could return a verdict for it on the issue of whether an ACV claim was asserted because the estimates attached to the complaint and submitted pre-suit necessarily included the ACV amount as the ACV was derived specifically from RCV. An exhibit to the complaint included a line item, marked "ACV" and an associated dollar amount. The complaint stated that "by failing to make complete payment to Plaintiff for the reasonable services rendered or to be rendered in connection with the Claim, Defendant breached the Policy." The court held that this allegation, along with the "ACV" noted in the estimates that were attached to the complaint, along with the summary judgment record before the court, created a genuine issue of material fact as to whether ACV damages were requested by Plaintiff pre-suit. 

    Empire argued that the estimates did not apply depreciation. The policy, however, did not require the claimant to include depreciation as its initial proof of loss and did not explain that depreciation was an element of a claim for ACV. Empire's interpretation would add a new term to the policy, which the court could not do. RR Restoration's failure to include depreciation in its estimates did not support a finding for summary judgment in Empire's favor. 

    

Judgment for Insurer Reversed Due to Failure to Establish Depreciation

    The trial court erred in placing the burden on the policyholder to establish depreciation in determining the actual cash value of the loss. SFR Serv., LLC v. Tower Hill Prime Ins. Co., 2023 Fla. App. LEXIS 3570 (Fla. Ct. App. May 26, 2023). 

    The insureds' roof was damaged by Hurricane Irma. They submitted their claim to their insurer, Tower Hill. The cost of repair was assessed at $7,726.94, below the amount of the deductible. Therefore, there was no recovery under the policy. The insureds assigned their claim to SFR Services, LLC, their roofing contractor. SFR submitted a claim to Tower Hill for $162,083.84. Tower Hill refused to pay and SFR sued. 

    The policy provided for payment of actual cash value of the loss. "Actual cash value" was typically defined as replacement cost minus depreciation. At the close of SFR's case, Tower Hill moved for a directed verdict, arguing SFR present inadequate proof of "actual cash value" because it did not account for depreciation. The court agreed and issued the directed verdict.

    The Court of Appeals reversed. Under normal circumstances, the insured would be responsible for establishing the amount of depreciation in order to arrive at the actual cash value. Here, however, the Tower Hill's policy placed the burden of establishing depreciation on the insurer. The policy defined actual cash value as "the cost to repari or replace coverage property, at the time of loss or damage . . . subject to a deduction for deterioration, depreciation and obsolescence as determined by us."

    Accordingly, the judgment for Tower Hill was reversed.

Actual Cost Value Includes Depreciation of Repair Labor Costs

    The court granted the insurer's motion to dismiss after determining that benefits paid for actual cost value (ACV) did not include repair or replacement labor costs. Shahan v. Allstate Vehicle & Prop. Ins. Co., 2022 U.S. Dist. LEXIS 135488 (W.D. La. July 29, 2022).

    Hurricane Laura damaged the insured's home. She filed a claim with Allstate under her homeowners policy. Allstate issued payment. The insured filed suit alleging Allstate wrongfully withheld amounts by depreciating labor when calculating the ACV of the damaged property. Allstate moved to dismiss.

    The policy was a replacement cost policy where the insured would receive the actual cash value of her insured property when it was damaged or destroyed by a covered peril. ACV was calculated by taking the repair/replacment which included both material and labor, and then deducting for depreciation. If no repairs or replacements were made, the insured was paid the ACV. If repairs or replacement was done, Allstate reimbursed the insured for the depreciation deduction. The insured challenged Allstate's refusal to pay 100% of the future labor costs, without any depreciation, even if the insured did not replace or repair the damaged property. 

    Some courts agreed with the insured's interpretation that ACV was indemnity coverage intended to return the policyholder back to the status quo, which would never be accomplished if repair labor was withheld. This court did not agree with the insured, however. 

    There was no ambiguity in the policy. The insured attempted to create an ambiguity where none existed. The policy here could not be interpreted to pay the insured for all future labor costs, which have not yet, nor may they ever be, incurred. Depreciation was the actual value of the damaged property reduced by a time factor depending upon the life expectancy of the property. ACV was the replacement of that property, less the depreciation. 

 

Illinois Supreme Court Rules Labor Costs Not Depreciated to Determine Actual Cash Value

    The Illinois Supreme Court determined that a homeowner insurer may not depreciate labor costs in calculating actual cash value (ACV) after a loss under the policy. Sproull v. State Farm Fire and Casualty Co., 2021 Ill. LEXIS 619 (Ill. Sept. 23, 2021). 

    Plaintiff was insured under a homeowner's policy that provided replacement cost coverage for structural damage. Under the policy, the insured would initially receive an ACV payment but then could receive replacement cost value (RCV) if repairs or replacement were completed within two years and the insurer was timely notified. The policy did not define "actual cash value."

    Plaintiff suffered wind damage to his residence and timely submitted a property damage claim to State Farm. The adjuster determined that the building sustained a loss with RCV of $1711.54. In calculating ACV, State Farm began with the RCV and then subtracted plaintiff's $1000 deductible and an additional $394.36, including taxes, for depreciation. Plaintiff thus received an ACV payment of $317.18. Plaintiff claimed that he was underpaid on his ACV claim because State Farm depreciated labor, which is intangible and thus not subject to wear, tear, and obsolescence. Further, labor should not have been depreciated because it was not susceptible to aging or wearing and its value did not diminish over time.

    Plaintiff alleged that State Farm concealed its practice of depreciating labor from its policyholders in several different ways. First, State Farm did not state in its written estimates that Xactimate software was set to depreciate nontangible items such as labor. Second, State Farm did not separate labor and materials in the estimates provided to policyholders. Third, for obvious labor-only charges such as debris removal or roof tear-off charges, State Farm did not depreciate labor. Plaintiff alleged that State Farm did this to help avoid detection of labor depreciation in other line items. In all, the more the ACV payment was lowered, the less likely it was that the policyholder could make up the difference between ACV and RCV and seek reimbursement later.

    Plaintiff sued and State Farm moved to dismiss. The trial court denied the motion, finding the policy was ambiguous because it did not define the term "actual cash value." The appellate court affirmed.

    On appeal, the Supreme Court noted that courts that adopt the view that labor can be depreciated generally (1) find the term "actual cash value" unambiguous, (2) find that materials and labor form an integrated product and that it is not logical to separate labor and materials when applying depreciation, and (3) believe that failing to depreciate labor overcompensates the insured. 

    The court determined that the policy was ambiguous on the question of labor depreciation and construed it in favor of the insured's reasonable interpretation. Labor was not logically depreciable, as it did not lose value over time due to wear and tear. Materials deteriorated with time, but labor did not. Labor was a fixed cost that was not subject to wear and tear, deterioration, or obsolescence. 

Eighth Circuit Affirms Finding of Bad Faith, Award of Costs and Prejudgment Interest

    The Eighth Circuit affirmed the district court's finding of bad faith and award to the insured of taxable costs and prejudgment interest. Selective Ins. Co. v. Sela, 2021 U.S. App. LEXIS 26062 (8th Cir. Aug. 30, 2021). 

    The insured suffered two hail storms that damaged his home. In 2010, the first storm caused over half a million dollars in loss. Before submitting a claim to his original insurer or beginning any repairs, the insured secured a new policy with Selective. The policy did not exclude pre-existing damage, it did preclude coverage if the insured "willfully and with intent to defraud, concealed or misrepresented any material fact or circumstance relating to the insurance."

    Before issuing the policy, Selective appraised the property and assigned a $1.6 million value to the home. The insured then filed a claim with his original insurer and received $510,787.23 for actual cash value of his loss. Neither the terms of this settlement nor this new policy with Selective required the insured to repair all of the 2010 damage. 

    A second storm hit in 2015, damaging the insured's roof. Selective sent an adjuster, who found the damage was "significant." Selective then received an anonymous letter claiming the insured was a serial fraudster who was falsifying claims, Selective brought in its special investigation unit to look into potential fraud. Selective was concerned that the insured said he had repaired all of the 2010 damage while only providing documentation for about $200,000 of work. Selective eventually denied the claim based on fraud.

    Selective then filed suit for a declaration of no coverage. The insured filed a counterclaim for breach of the policy and bad faith. The court determined that the jury would decide coverage, an appraisal panel would determine damages, and the court would decide bad faith. The jury found no fraud, the damage issue went to appraisal, and a date for the bench trial was set.

    A week before the appraisal was finished, Selective moved for summary judgment, arguing the Minnesota statute would bar the bad faith claim because the claim would be resolved by appraisal. The district court denied the motion, held a bench trial and found that Selective denied the claim in bad faith. It awarded judgment for $1,024,233.10, which included the actual case value award, taxable costs, and prejudgment interest. Selective appealed.

    The Eighth Circuit noted that the Minnesota statute allowed an insured to recover taxable costs if an insurer lacked a reasonable basis for denying benefits and did so knowing of or in reckless disregard of the lack of a reasonable basis. The Eighth Circuit agreed with the district court that there was no reasonable basis to deny the insured benefits. Selective recklessly disregarded the lack of a reasonable basis to deny the claim. Prejudgment interest was also properly granted by the district court. Under Minnesota precedent, the district court found that Selective had enoguht information in the property loss notice to assess its potential liability. Prejudgment interest was due from this point forward.

South Caroline Holds Actual Cash Value Can Include Depreciation of Labor Costs

    Answering a certified question, the South Carolina Supreme Court held that the insurer could calculate actual cash value (ACV) by including an estimate of the depreciation of embedded labor costs. Butler v. Travelers Home & Marine Ins. Co., 2021 S. C. LEXIS 51 (S.C. May 12, 2021). 

    Two insureds had their homes damaged in separate fires. Each held homeowners' policies with Travelers. The policies provided replacement cost value coverage to repair or replace damaged portions of homes. In the event that the insures chose not to immediately repair or replace the damaged home, the policies afforded payment to the insured for the actual cash value instead of replacement cost value. Both insured elected not to immediately repair or replace their homes, thereby deciding to accept a cash payment for the ACV of the damaged property. Neither was satisfied with the payment and both filed suit in federal district court.

    Travelers determined the ACV payment by estimating the replacement cost value (RCV) of the damage and then subtracting depreciation. The certified question presented by the federal district court was whether Travelers could depreciate the labor component of the costs of repair or replacement when determining the ACV. 

    The court noted that to calculate RCV, a determination was made on the extent of the damage and then soliciting bids to have the damage repaired or replaced. ACV, on the other hand, was difficult to determine in a specific situation. There was normally no market for aged and partially deteriorated portions of homes. 

    Here, Travelers began by estimating the RCV of the damaged property, and from that number it subtracted a separate estimate of lost value, or depreciation. It was unclear how Travelers went about determining the appropriate amount for depreciation. but it did include labor costs in the depreciation calculation. 

    The court found that labor costs were "embedded" with the property. To illustrate, the cost of a new roof included the cost of shingles and nails. Initially, the shingles and nails had labor costs because workers had to make them. By the time the shingles and nails were sold to the roofer, however, those labor costs were "embedded" in the market price the roofer paid to purchase them. Thus, the roofer paid one price for the shingles and one price for the nails. There was no differentiation between the cost of materials in those products and the cost of labor used to make them. Similarly, the cost of a new roof included paying workers to remove the old roof and install the new one. The market had one price for the roof because the material and labor costs were "embedded" in it. 

    Here, the value of the damaged property was reasonably calculated as a unit. Therefore, the court answered the certified question "yes." It made no sense for an insurer to include depreciation for materials and not for embedded labor. 

    The court noted, however, that if the insured believed its insurer made an incorrect calculation on ACV, a question of fact was presented for a fact finder to determine. 

    

Insured Proves Collapse, but Fails to Establish Any Value for Loss

    While the insured was able to carry his burden to show the collapse of a roof, he failed to establish damages under the policy. Iannucci v. Allstate Ins. Co., 2018 U.S. Dist. LEXIS 203687 (N.D. N.Y. Dec. 3, 2018). 

    In 2005, the insured purchased a parcel of land together with a three-story building constructed in 1870. No one resided in the building at the time of purchase or afterward. The building was not well maintained and all utilities were shut off. No work was done on the building between 2005 and 2014. Between 2011 and 2014, the Fire Department issued multiple zoning/ordinance violation notices ordering the insured to make various improvements to the building and property. A notice issued in October 2013 stated that "the roof on your house needs to be replaced." Before any work was done on the roof, however, it collapsed during a snowstorm on February 21, 2014. 

    The insured's all-risk policy excluded loss caused by such things as enforcement of building codes, failure to preserve property, wear and tear, aging, and faulty, inadequate or defective maintenance. The policy covered collapse, however, for "(a) the entire collapse of a covered building structure; (b) the entire collapse of part of a covered building structure; and (c) direct physical loss to covered property caused by (a) or (b)." The collapse had to be "sudden and accidental" and caused by, among other things, weight of snow which collected on a roof.

    On March 5, 2013, the fire department issued a violation notice directing the insured to demolish the building because the roof had collapsed. The City's file indicated that the roof's collapse had been caused by the accumulation of snow. The insured notified Allstate. A claims adjuster visited the property and photographed extensive damage to the building. Allstate denied the claim based upon an expert's report that the cause of the roof collapse was the lack of adequate and timely maintenance. Allstate cited several additional exclusions, including enforcement of building codes, failure to preserve property, wear and tear, and inadequate maintenance in denying the claim. 

    The insured sued and a bench trial was conducted. The court found that the collapse of the roof was sudden, but the "entire collapse" of the building was not. The insured therefore failed to prove that the loss of the building structure was within coverage under the policy, even if the collapse of the roof was covered. 

    The policy stated it did "not cover loss to covered property . . . when :(a) there are two or more causes of loss to the covered property; and (b) the predominant cause(s) of loss is (are) excluded" from coverage. Here, the evidence did not show that any cause was predominant to the weight of snow in directly bringing about the collapse of the roof. Instead, the preponderance of the evidence indicated that the most direct and obvious cause of the collapse of the roof was the weight of the snow. Allstate failed to prove that any of the other causes, such as inadequate maintenance - considered separately or together - predominated over the weight of the snow as the efficient cause of the collapse. 

    Therefore, the insured carried his burden to prove coverage for collapse of the roof. Nevertheless, the insured failed to establish the value of his loss under the policy. The insured failed to provide any evidence regarding the value of the roof or from which to infer its value, e.g., the market value of the building before and after the collapse or the cost of replacing the roof with one of like kind or quality. Allstate, on the other hand, established that the roof was worthless. Accordingly, the insured was not entitled to damages for the loss of the roof. 

Labor Costs Not Excluded From Depreciation When Determining Actual Cash Value

    The court dismissed a class action suit against State Farm which sought to establish that a calculation of actual cash value (ACV) in a homeowners policy could not depreciate the cost of labor. Cranfield v. State Farm Fire & Cas. Co., 2018 U.S. Dist. LEXIS 199618 (N.D. Ohio Nov. 26, 2018)

    Cranfield submitted a claim to State Farm after his home was damaged by a storm. An adjuster inspected the damage and an estimate for repair was sent to Cranfield. The total cost to repair the damage, the replacement cost value, was $4,044.86. State Farm calculated the depreciation amount to be $1,348.57. With the deductible, State Farm sent a net ACV of $842.29 to Cranfield. 

    The policy had a two-step loss settlement provision under which State Farm paid the ACV at the time of loss. Only the ACV was paid until the actual repair was made. Once the repair was completed, State Farm would pay the additional amount that the policy holder actually spent. Cranfield filed a class action suit, challenging the manner which State Farm calculated ACV. He argued that including labor along with materials in the depreciation calculation resulted in an ACV payment that was less than he was contractually entitled. 

    The court disagreed. As used in the policy, ACV was not ambiguous. Black's defined "ACV" as "replacement costs minus normal depreciation" or fair market value. There was nothing in the policy to indicate that the intent of the parties was to limit the definition of ACV to exclude labor from depreciation. The policy did not separately insure the labor and building materials, but the sum total of these parts. Accordingly, the term ACV was unambiguous and State Farm's inclusion of labor in depreciation did not breach the policy. 

Data Breach Does Not Constitute "Personal Injury" Under CGL Policy

    The federal district court agreed with the insurer that there was no coverage for the insured's causing a data breach. St. Paul Fire & Marine Ins. Co. v. Rosen Millennium, Inc., 2018 U.S. Dist. LEXIS 173072 (M. D. Fla. Sept. 28, 2018).

    Millennium provided data security services for Rosen Hotels & Resorts, Inc. (RHR). In February 2016, RHR became aware of a potential credit card breach at on of their hotels. RHR hired a forensic investigator to determine whether a data breach occurred. The forensic investigator found malware installed on the payment network and determined that customers' cards may have been affected. RHR disclosed the data breach to potentially affected customers.

    Millennium submitted a Notice of Claim to St. Paul after receiving an email from RHR indicating that RHR believed that the data breach was caused by Millennium's negligence and inquiring as to whether Millennium had insurance to cover such a loss. St. Paul issued a reservation of rights, indicating there was no coverage for the claim. Millennium then provided a letter from RHR in which RHR alleged it was entitled to payment from Millennium as a result of the data breach. RHR did never filed suit.

    St. Paul filed suit for a declaratory judgment that it had no defense obligations and moved for summary judgment. RHR argued St. Paul was obligated to defend because: (1) the customers' loss of use of their credit cards, and the inevitable replacement of the cards, was covered as "property damage;" and (2) the costs incurred by RHR in complying with the notification statutes were covered under the policy. 

    The court noted there was no underlying complaint, so it looked at RHR's Notice of Claim and demand letter. The Notice of Claim had no substantive information other than the fact that a 'credit card systems breach occurred. Details in the demand letter were also sparse, but it specifically stated that Millennium "made private information known to third parties that violated a credit care holder's right of privacy." Therefore, the court addressed St. Paul's duty to defend under the personal injury provisions of the policy.

    The policy defined "personal injury" as an "injury other than bodily injury or advertising injury, that's caused by a personal injury offense." A "personal injury offense" included "making known to any person or organization covered material that violates a person's right of privacy." The parties disputed whether the "making known" requirement was met. The parties agreed that "making known" was synonymous with "publication." 

    The court determined there was no publication. The CGL policy required covered personal injuries to result from the insured's business activities. RHR's alleged injuries did not result from Millennium's business activities but rather the actions of third parties. Therefore, RHR's personal injury claim was not covered under the policy and St. Paul had no duty to defend.