Carey v. American Family Brokerage, Inc.

909 N.E.2d 255 (2009)

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Nature of the Case

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Facts

Ps purchased a building in 1998 for approximately $225,000. After its purchase, plaintiffs made approximately $60,000 in improvements to the subject building. P testified that the improvements included the installation of new water heaters for each of the eight residential apartment units, and the replacement of the 'piping in the building, allowing [each unit] to control [its] own hot water and [its] own heat.' In November 2000, Ps paid for approximately $25,000 worth of repairs to three residential apartment units damaged by flooding. D issued three consecutive one-year policies covering the September 1, 1998, through September 1, 2001, time period. The policy at issue in this case provided coverage of $850,000 for damage to the subject building and business personal property. With regard to the valuation relating to damage to covered property, the policy provided: Loss or damage to covered property (except money or securities) will be determined on either replacement cost or actual cash value, as shown in the declarations and defined below. 1. Replacement Cost. When Replacement Cost is the basis for valuation: a. We will pay no more than the smaller of: (1) the cost to repair or replace the damaged property at the same site, and for similar use, using new materials of like kind and quality without deduction for depreciation; or (2) the amount actually and necessarily spent to repair or replace the damaged property. c. We will not pay on a replacement cost basis until the damaged or destroyed property is repaired or replaced, and unless such repair or replacement is made as soon as reasonably possible after the loss. (1) You may make a claim for actual cash value and later make a claim on a replacement cost basis if you tell us in writing within 180 days after the loss. (2) If you decide not to repair or replace the property at the same site, we will pay your loss on an actual cash value basis. 2. Actual Cash Value. When Actual Cash Value is the basis for valuation: a. We will pay the smaller of: (1) the actual cash value at the time of the loss; or (2) the cost to repair or replace the damaged property with property of like kind and quality.' The loss to the subject building is to be measured on an actual cash-value basis. A fire caused substantial damage. Ps filed a claim under the policy. D denied the claim based on its investigation that the fire resulted from arson and that Ps participated in the arson, which was excluded under the policy. D engaged Judy Spoerlein, a fire loss specialist. Spoerlein investigated every room of the subject building that had been damaged by fire and utilized an 'estimating program' to arrive at a damage valuation. Spoerlein testified that the 'estimating program' was a software program that included the replacement cost for damaged 'units,' i.e., windows, doors, etc. Spoerlein testified that after she measured the dimensions of every damaged room, and noted all damaged 'units,' she input her figures into the 'estimating program' and arrived at a replacement cost estimate for damage to the subject building at $398,725.61. Ps filed the instant lawsuit for breach of the insurance contract. On cross-examination, Spoerlein testified that she utilized a replacement cost valuation method in calculating her estimate and did not utilize the actual cash value method. She testified that to arrive at an actual cash value estimate she would first determine a replacement cost estimate and then subtract depreciation. Spoerlein testified that her February 2001 report did not consider the depreciation of the items that were damaged. Spoerlein testified that the actual cash value of the damage to the subject building would represent a lower figure than the replacement cost for the same damage because of a deduction for depreciation. The trial court awarded Ps $383,725.61, after subtracting $1,000 for the deductible under the policy and a $14,000 advance paid by D (used to perform emergency structural repairs to the subject building shortly after the fire) from Spoerlein's valuation for damage caused to the subject building by the February 6, 2001, fire. D appealed.