AH Jacobson Co. v. Commercial Union Assur. Co.

• Decision Date: 03 March 1949
• Docket Number: Civ. No. 2827.
• Parties: A. H. JACOBSON CO. v. COMMERCIAL UNION ASSUR. CO., Limited.
• Court: U.S. District Court — District of Minnesota

83 F. Supp. 674

A. H. JACOBSON CO. v. COMMERCIAL UNION ASSUR. CO., Limited.

Civ. No. 2827.

United States District Court D. Minnesota, Fourth Division.

March 3, 1949.

Leonard, Street & Deinard, of Minneapolis, Minn., for plaintiff.

Bowen & Bowen, of Minneapolis, Minn., for defendant.

JOYCE, District Judge.

A. H. Jacobson Company, a Minnesota corporation, sues the Commercial Union Assurance Company, Limited, a corporation existing under the laws of Great Britain, to recover upon a standard policy of fire insurance. Since jurisdiction is predicated upon diversity of citizenship, the law of Minnesota, so far as ascertainable, controls the rights and liabilities of the parties.

On April 21, 1947, the parties entered into a contract whereby the defendant insured the plaintiff to the extent of $5,000 against all loss or damage by fire to a building situated at 1301-1307 West Lake Street in the City of Minneapolis, Minnesota. The policy fixed the insurable value of the building at $22,000, and contained a clause making the insured a co-insurer unless it maintained contributing insurance to the extent of 90 per cent of the actual cash value of the building at the time of the loss. Plaintiff avoided becoming a co-insurer by securing an additional $15,000 worth of fire insurance from other insurers. The policy further provided that in the event of any loss or damage the insured should submit proof of loss "forthwith"; that if the parties disagreed as to the amount of the loss, the same should, except in case of total loss, be determined by appraisers; and that the insurer should either pay the amount for which it was liable within 60 days after receipt of the proof of loss, or notify the insured within 15 days after receipt of such proof of its intention to rebuild or repair.

The building here involved was erected in 1911. It had a frontage of 93.55 feet along the south side of West Lake Street. The interior was divided into two sections by a partition wall with several doors which provided means of passage from one section to the other. The west 30 feet of the building, referred to as the west section, had a depth of 92 feet. The remaining portion, designated the east section, had a depth of 80 feet. Except for the rear wall of the east section which was constructed of concrete blocks, the building was of wood frame construction. During April, 1947, the building was being used by plaintiff's tenant as a show room for second-hand automobiles.

Subsequent to the erection of plaintiff's building but prior to 1947, the City of Minneapolis adopted an ordinance establishing Fire Limits, within which area plaintiff's building was located. In addition, the city enacted a Building Code controlling the kind and character of new construction and of repairs to existing structures which would be permitted within the Fire Limits. Not only did the Building Code require that all new buildings be constructed with exterior masonry walls supported by concrete foundations extending three feet six inches below the surface of the ground, but it also made the following provision: "Section 405. Damaged Buildings within the Fireproof District and Fire Limits. Frame buildings damaged by fire, collapse, or other cause to the extent of forty (40) or more per cent of the value of a similar new building shall not be repaired or rebuilt but shall, if dangerous in the opinion of the Inspector of Buildings, be removed. If damaged to a lesser extent, they may be restored to their original condition."

A fire occurred during the forenoon of April 28, 1947 which resulted in damage to plaintiff's building. Within a few days after the fire, an inspection of the damaged premises was made by Assistant Building Inspector Rodmyre, and a written statement was submitted to the Building Inspector which reported a total loss of the west section and substantial damage to the east section. On the basis of this report, and after conversations with Rodmyre, the Building Inspector refused, on July 7, 1947, to issue a permit to repair or rebuild the damaged building so as to restore it to its previous condition. Thereafter new plans were submitted to the Inspector which proposed construction of a building conforming to the requirements of the Building Code. These plans were approved August 14, 1947, and plaintiff started the construction of a new building.

In constructing the new building, plaintiff's contractor utilized all the material from the damaged building which could be salvaged. Thus, insofar as the roof structure of the east section remained undamaged, it became a part of the new building. The same was true of the salvageable lumber and the undamaged portion of the heating, plumbing and electrical equipment. After utilizing the salvageable material from the damaged building, the cost of the new building exceeded $43,000. Plaintiff's contractor testified that this cost exceeded the minimum cost of building in conformance with the Building Code by between $3,000 and $8,000. Thus, it was the contractor's opinion that the minimum cost of a new building, of the same dimensions as the old, under the Building Code, and after utilizing all possible salvageable material, would have been between $35,000 and $40,000.

Following the fire both plaintiff and defendant secured estimates of the cost of repairing the damaged building on the assumption that it could be restored to its pre-fire condition. Although the parties agreed that cost of repairs would be somewhat in excess of $17,000, defendant contended that this figure should be considerably decreased in order to reflect the depreciated condition of the building. No settlement was reached, and on July 7, 1947, the same day that the Building Inspector refused to issue a permit to repair or rebuild, the insurer's adjuster wrote plaintiff seeking arbitration of the amount of the loss. When plaintiff refused to appoint an appraiser, defendant secured an order from the District Court of Hennepin County appointing an umpire. This order was vacated by the same court on December 1, 1947 on the ground that any demand for appraisement was premature until after the insured had submitted proof of loss. The order vacating the order appointing an umpire was appealed to the Supreme Court of the State of Minnesota, which court affirmed the action of the trial court in Boston Insurance Co. v. A. H. Jacobson Co., 1948, 226 Minn. 479, 33 N.W.2d 602.

In the meantime, on November 24, 1947, plaintiff submitted its proof of loss, and the same was returned by defendant. On December 2, 1947, defendant again wrote plaintiff demanding an appraisement but at the same time reserved all rights with respect to the questions of extent of, or liability for, the loss. Plaintiff's response to this demand was a letter in which it appointed an appraiser, but reserved the right to have the question of the existence of a total loss determined by a court of competent jurisdiction. The arbitration proceedings are still pending. In July, 1947, plaintiff sued in the District Court of Hennepin County alleging a total loss. Defendant removed the case to this court.

Plaintiff claims a right to recover as for a total loss under the facts established and the applicable decisions of the Supreme Court of Minnesota. If plaintiff is to recover at all in this action, it must be upon the basis of a total loss, for the parties, in their insurance contract, have agreed to submit the question of the extent of a partial loss to arbitrators. Defendant denies plaintiff's claim on the grounds that: (1) the loss was partial and not total; (2) the ordinance under which the Building Inspector acted was unconstitutional, or if constitutional, was not controlling upon the defendant's rights; and (3) the conduct of plaintiff precluded its recovery. Finally, even though the loss be total and defendant liable, the parties disagree on the measure to be used in evaluating the remnants of the damaged building.

(1) On the question of whether the loss was total, plaintiff relies upon two rules which have been enunciated by the Supreme Court of this state. The first rule says that where a city ordinance prohibits the repairing of a building damaged by fire, the insured suffers a total loss. Larkin v. Glen Falls Insurance Co., 1900, 80 Minn. 527, 83 N.W. 409, 81 Am.St.Rep. 286. Thus, assuming for the purpose of this phase of the discussion that the ordinance and the action taken by the Building Inspector thereunder were valid, plaintiff's loss is total. The second rule relied upon by plaintiff provides that where a fire results in an actual loss exceeding the amount of insurance on a building, the loss is to be treated as total. Oppenheim v. Fireman's Fund Ins. Co., 1912, 119 Minn. 417, 138 N.W. 777; Ohage v. Union Ins. Co., 82 Minn. 426, 85 N.W. 212. The applicability of this rule to the facts of the present case depends upon whether an insured's actual loss is to be measured by the cost of restoring the building to its condition before the fire, or by the cost of restoring it in conformance with the requirements of the Building Code. Although the Minnesota Court has not ruled on this precise question, I believe the latter approach reflects the more accurate measure of an insured's actual loss. Other jurisdictions have taken this view. Hewins v. London Assurance Corp., 1903, 184 Mass. 177, 68 N.E. 62; Pennsylvania Co. v. Philadelphia Contributorship, 1902, 201 Pa. 497, 51 A. 351, 57 A.L.R. 510. Furthermore, to measure the insured's actual loss by the requirements of the ordinance is consistent with language used by the court in the Larkin case, supra, 80 Minn. at page 531, 83 N.W. at page 410, 81 Am.St.Rep. 286. There the court said: "The parties are presumed to know of the ordinances. They directly and materially affect their rights in case of a loss under the policy, and should govern and control in the adjustment and settlement of such loss." (Emphasis supplied.) In the...