American Family Mut. Ins. Co. v. Doug Rose, Inc., WD

• Decision Date: 22 September 1992
• Docket Number: No. WD,WD
• Citation: 841 S.W.2d 698
• Parties: AMERICAN FAMILY MUTUAL INS. CO., Respondent, v. DOUG ROSE, INC., Appellant. 44476.
• Court: Missouri Court of Appeals

Page 698

841 S.W.2d 698

AMERICAN FAMILY MUTUAL INS. CO., Respondent, v. DOUG ROSE, INC., Appellant.

No. WD 44476.

Missouri Court of Appeals Western District.

Sept. 22, 1992.

Motion for Rehearing and/or Transfer to

Supreme Court Denied

Oct. 27, 1992.

Application to Transfer Denied Dec. 18, 1992.

J. Michael Vaughan, J. Bret Armatas, Cindy L. Reams, Kansas City, for appellant.

Kent M. Bevan, Janet I. Blauvelt, Kansas City, for respondent.

Before SPINDEN, P.J., and TURNAGE and BRECKENRIDGE, JJ.

SPINDEN, Presiding Judge.

On May 13, 1988, fire extensively damaged several apartment buildings under construction in Liberty. Doug Rose, Inc., (DRI) owned the structures. American Family Mutual Insurance Company had insured the buildings against fire damage, and in this lawsuit it seeks a declaration of the extent of its liability.

The trial court set American Family's liability at approximately $1.05 million, the cost of repairing the structures. The trial court rejected DRI's contention that § 379.140 ¹ required American Family to pay the full face value of the insurance policy, nearly $2.04 million. We agree that American Family was not liable for the policy's face value because the policy provided for a provisional amount for insured buildings under construction. We conclude, however, that the trial court used the wrong measure of damages. Instead of using the cost of repair, it should have awarded DRI the difference between the structures' reasonable value immediately before the fire and their reasonable value immediately after the fire.

American Family's policy covered four of DRI's apartment buildings known as Phase II of Jefferson Park of Liberty Apartments. The policy's face values at the time of the fire were: Building 6--$637,700; Building 7--$760,700; and Building 8--$637,700. ²

The policy was a non-reporting, completed value policy with provisional limits. Because it was non-reporting, the risk and value of the structures insured were averaged over the term of the policy, and the policy was not rewritten as the value of the structures increased, as is the practice with reporting policies. As a completed value policy, the amounts stated in the declarations were the amounts of coverage upon a building's completion, and the liability limits were based on the value of the structures as construction progressed. American Family did not issue a separate and new policy upon a building's completion.

DRI was paying the same premium as it would be paying after the buildings were finished. American Family's manual stated, "Rate for Builders' Risk the same as though the building were completed and owner occupied. The amount of coverage is 100% of the completed value."

The declarations sheets indicated that the property was insured for replacement cost. The policy defined replacement cost as "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."

When the fire occurred, none of the buildings was completed. Buildings 6 and 8 suffered substantial damage to their roofs and walls. Building 7 was burned to the ground; only the concrete slab and the stem walls remained. Building 5 suffered much less damage. Parts of the buildings, including Building 7, were salvaged and used in reconstructing the structures.

On July 7, 1988, Capitol Mortgage Company, DRI's construction lender, filed a claim with American Family for the fire. Asked in the claim form what amount of loss it claimed, Capitol Mortgage responded that it sought the amount of indebtedness secured by the property: $2,218,669.40 and the interest due.

DRI filed its own proof of loss form on July 12, 1988. It sought the policy's face value. In the alternative, it requested the difference between the buildings' value before the fire and their value after the fire. American Family rejected DRI's request because it did not include the cost of repairing the buildings. On August 15, 1988, DRI filed a second proof of loss with an itemized cost of repair.

On August 24, 1988, American Family offered to pay DRI $21,867.60 to repair Building 5. On September 6, 1988, it offered to pay $1,027,501.48 for the cost of repairing the remaining three buildings. Both offers required DRI to sign releases. DRI rejected both offers, indicating that it did not agree that the amount was sufficient to cover its damages and refused to sign the releases. On September 21, 1988, American Family issued a draft for $1,049,339.08 with no release. DRI accepted it. At trial, the parties stipulated that $1,049,339.08 was "the cost to repair Building 5, 6, 7 and 8 to the stage of completion which existed immediately before the fire occurring on or about May 13, 1988."

Section 379.140

DRI wants to apply § 379.140 to this case because it incorrectly reads the statute to guarantee it the full face value of the policy. The statute provides that "[i]n all suits brought upon policies of insurance against loss or damage by fire ..., the defendant shall not be permitted to deny that the property insured thereby was worth at the time of the issuing of the policy the full amount insured[.]" The General Assembly did not guarantee in this provision the full face value; it mandated that an insurance company be estopped from denying that the insured property was worth less than the amount for which it had insured it.

American Family is not attempting to pay less than the policy's provisional limits in effect on the date of the fire. From our reading of the policy, it was obligated to pay only the provisional amount, not the face value. Section I.1 of the policy's builders risk conditions states clearly, "The limit of insurance stated in the declarations [face value] represents the completed value of the building insured. While this endorsement is in effect, this limit is a provisional amount." ³ Hence, the face value was not the amount of insurance until the buildings were complete. ⁴

DRI makes a further attempt to apply § 379.140 to its case by asserting that Buildings 6, 7 and 8 were total losses. The trial court found that they were not. DRI challenges this finding because, again, it wrongly assumes that the finding deprives it of a benefit under § 379.140. The statute provides that "in case of total loss of the property insured, the measure of damage shall be the amount for which the same was insured[.]" DRI wrongly assumes that its property was insured for $2.04 million on the date of fire. Section I.1 quoted above makes it clear that it was not. Hence, even if the trial court's finding was incorrect--and we do not so conclude--the statute would not benefit DRI.

Damages

DRI complains about the way the trial court measured damages. It contends, first, that the trial court should have concluded from the policy's language that American Family was liable for the damaged structures' actual value.

DRI points to policy's provision noted above that American Family would "pay no more than the actual value of the covered property on the date of the loss." This provision, it asserts, requires that American Family pay the difference between the buildings' value immediately before the fire and their value immediately after the fire. This provision does not support DRI's point. It does not state that American Family must pay actual value; it states that American Family will pay "no more" than actual value. It is merely a ceiling on what American Family must pay under the policy. The provision to which DRI points refers it back...