Insurance policies are often an overlooked part of our day-to-day lives. However, when a claim must be made, those overlooked (or never read) provisions may limit your recovery. After over four years of arguing and litigation, two homeowners may have learned this lesson.
In the case of Thomas v. The Standard Fire Ins. Co., et al., a home in Chattanooga suffered extensive storm damage in April 2011. Over 130 trees on the property were damaged along with the house. The homeowners turned in a claim and quickly reached an agreement on the value of the tree damage. However, the insurance company and the homeowners had differing opinions on the cost to repair the home. The difference in estimates is unknown; however, the court noted that a neutral umpire found the damage to be approximately $133,000. The homeowners were unhappy and sued.
At issue in the lawsuit was the appraisal process contractually agreed to by the homeowners and the insurance company. In short, the appraisal process stated that if the parties can't agree on the repair estimate, then each party will pick an independent appraiser, and, if those two can't agree, they will then select a "competent, impartial umpire" to determine the cost of the repairs. This was the process that the parties agreed to, and did, follow, yet the homeowners were unhappy with the resulting number.
Both the trial court and court of appeals found in favor of the insurance company. The courts concluded that the appraisal process was not an arbitration clause subject to the Uniform Arbitration Act. Further, the courts found that the homeowners did not take issue with the appraisal clause or practically any part of the process taken under the clause. Rather, they just wanted more money. The courts found that this was not a sufficient reason to vacate the umpire's finding, and further that the valuation should stand, as the umpire clearly acted within the scope of authority granted to him under the appraisal clause. In other words, the homeowners were stuck.
Although insurance policies are often non-negotiable, there are a multitude of carriers which may offer differing policy terms and valuation methods. Understanding what such policies say upfront can be helpful in knowing what you are or are not entitled to as an insured. Further, understanding the policy is crucial in determining the appropriate path to resolve disputes should they arise.
Fire Loss and New Home Construction
Lawsuits often involve the interplay of several theories of recovery (e.g. breach of contract, negligence, etc.) and after-the-fact critiquing of the parties' actions (e.g. was insurance purchased?, what did the construction contract say?, who was the last to leave the property?, etc.). Skilled attorneys can help clients both plan for certain contingencies as well as craft arguments if litigation commences. The recent case of Jenkins v. Big City Remodeling, et al., highlights such concepts.
In sum, the Jenkins hired a general contractor ("GC") to build a house. The GC and the Jenkins entered into a construction contract with neither party seemingly understanding all the terms (more on this below). The GC hired subs to do the work. The flooring sub apparently left flammable rags behind along with discarded cigarette butts. The house exploded and burned to the ground (captured on a neighbor's security camera). Everyone blamed everyone else and a lawsuit commenced.
Although the case dealt with numerous interesting issues, only two will be addressed here.
First, the homeowners never procured "all risk" insurance as specifically required by the construction contract. At the trial court level, the court found that this was a material breach by the homeowners and thus, the GC was off the hook. The court of appeals reversed this finding, but the import here is that if a person is entering into a contract (especially as important as building a 6,000 square foot home), then that person really ought to read, understand, and follow the contractual obligations.
Second, notwithstanding the video evidence of the flooring sub being the last to leave the house before the fire, the evidence that flammable rags were left out, and the evidence that the flooring sub didn't dispose of cigarettes butts properly, the trial court still dismissed it as a party finding that the Jenkins failed to meet their legal burden of proof. The court of appeals however, reversed, noting that this was a jury question.
The case makes for an interesting read and the saga between these parties isn't yet resolved. However, hopefully by now the GC took a closer look at its contract documents, the flooring sub learned how to dispose of flammable rags and cigarette butts, and the homeowner found the phone number of its insurance agent.
Jenkins v. Big City Remodeling, et al., No. E2014-01612-COA-R3-CV, (Tenn. Sep. 29, 2015).
Is Arson Malicious Mischief?
When a loss occurs, people often turn to their insurance companies to pay the loss. This is true whether the loss is due to a car crash, a slip and fall at one’s house, or theft. However, not all losses are insurable. Insurance companies sometimes do, and legally can, deny payment of claims based on language in the underlying policy or exclusions for certain types of losses. It is crucial to actually read the underlying insurance policy and to engage in a dialogue with one’s insurance agent to make sure the policy in fact covers what you think it does. The recent case of Southern Trust Co. v. Matthew Phillips illustrates why this is important.
In Southern Trust Co., the insured, Matthew Phillips, owned a vacant house. The house caught fire as a result of arson. Mr. Phillips, however, did not set the fire. The insurance company, Southern Trust, denied coverage for the loss due to an exclusion for losses caused by “vandalism and malicious mischief, theft or attempted theft” if the dwelling was vacant. Neither party disputed that the dwelling was vacant and that arson caused the loss. However, the parties did not agree on whether the loss was insurable.
A lawsuit for declaratory judgment was filed, which is a remedy available to both insureds and insurance companies (as well as others disputing the interpretation of a contract or document). In this case, Southern Trust asked a court to declare the rights and obligations under the underlying insurance policy while Mr. Phillips answered and counterclaimed arguing there was insurance coverage.
The arguments presented to both the trial court and court of appeals focused on how the policy was written, where within the policy certain terms were defined (i.e. “vandalism and malicious mischief, theft or attempted theft”), and the types of coverage discussed throughout the policy. In addition, both parties and the court looked to past cases dealing with insurance policy analysis.
The court of appeals issued a fairly lengthy decision describing how it reached its conclusion that fire and arson were in fact covered losses at a vacant dwelling, but that vandalism or malicious mischief were not insurable losses at a vacant dwelling. In other words, Mr. Phillips was entitled to coverage for the arson, but he wouldn’t have been had there been “malicious mischief”.
Understanding insurance policies is very important for individuals and businesses alike. Insurance agents are the gatekeeper to these discussions, but when disputes such as the one Mr. Phillips faced, occur, both insurance companies and individuals may be well served by including legal counsel in such discussions as well.
Southern Trust Co. v. Matthew Phillips, No. E2014-01581-COA-R3-CV, (Tenn. Ct. App. June 10, 2015).