Cigna Property & Cas. Ins. Co. v. Verzi

• Decision Date: 01 September 1995
• Docket Number: No. 2019,2019
• Citation: 112 Md.App. 137,684 A.2d 486
• Parties: CIGNA PROPERTY & CASUALTY INSURANCE COMPANY v. Douglas W. VERZI. ,
• Court: Court of Special Appeals of Maryland

Page 137

112 Md.App. 137

684 A.2d 486

CIGNA PROPERTY & CASUALTY INSURANCE COMPANY v. Douglas W. VERZI.

No. 2019, Sept. Term, 1995.

Court of Special Appeals of Maryland.

Nov. 6, 1996.

Michael B. Mann, Towson, for Appellant.

David E. Carey (Albert J.A. Young and Brown, Brown & Brown, P.A., on the brief), Bel Air, for Appellee.

Argued before WENNER, CATHELL and EYLER, JJ.

WENNER, Judge.

Cigna Property and Casualty Insurance Co. (Cigna), appeals from the Circuit Court for Harford County's grant of summary judgment in favor of Douglas W. Verzi (Verzi). On appeal, Cigna inquires whether the circuit court erred in granting Verzi's motion for summary judgment. ¹

Finding no error, we shall affirm the judgment of the circuit court.

FACTS

Verzi contracted with Cigna for $100,000 of fire insurance covering a building owned by Verzi at 4101 Norrisville Road in White Hall, Maryland ("the building"). The policy was in effect from 6 October 1991 to 6 October 1992, and the building was destroyed by fire on 4 November 1991.

Three months prior to the fire, Verzi had entered into an agreement with High's to lease and demolish the building, and construct a convenience store. Pending demolition of the building, Verzi was permitted to store personal effects in it until 1 March 1992.

The lease was contingent upon High's obtaining the necessary permits for demolishing the building and replacing it with a High's Dairy Store, including gasoline pumps. The agreement would be void if High's was unable to obtain the necessary permits by 1 July 1992. High's acquired the permits on 23 May 1992, more than six months after the building had been destroyed by fire.

In April 1992, Verzi sought to recover from Cigna the building's replacement value. Cigna denied the claim on the grounds that Verzi had suffered no compensable loss, as the building was to be demolished. ²

I.

In reviewing a grant of a summary judgment, our standard "is simply whether the trial court was legally correct." Beatty v. Trailmaster Prods., Inc., 330 Md. 726, 737, 625 A.2d 1005 (1993). Maryland Rule 2-501(e) provides that, the

court shall enter judgment in favor of or against the moving party if the motion and response show that there is no genuine dispute as to any material fact and that the party in whose favor judgment is entered is entitled to judgment as a matter of law.

As the parties agree that there are no disputed facts, we turn to whether the trial court was legally correct in granting summary judgment in favor of Verzi.

II.

Despite the parties agreeing that there are no disputed material facts, the legal significance of those facts is disputed. The parties agree that the building was insured when it was destroyed by fire subject to Verzi's conditional agreement with High's to demolish the building. It was also agreed that demolition of the building was contingent on High's obtaining the necessary permits.

According to Cigna, Glens Falls Ins. Co. v. Sterling, 219 Md. 217, 148 A.2d 453 (1959), is dispositive. We do not agree.

In Glens Falls, the Sterlings had obtained insurance on a home under construction. Before being completed, it suffered substantial windstorm damage. The construction contract required the builder to repair the damage at no additional cost. Despite seeking recompense from their insurer, the Sterlings offered no evidence of actual pecuniary loss. Consequently, the claim was denied. The Sterlings then sued their insurer.

The issue presented on appeal was "[c]an there be a recovery under a fire and windstorm insurance policy when the holders thereof fail to show a pecuniary loss from the damage to the building covered thereby as a result of wind?" Glens Falls, 219 Md. at 218, 148 A.2d 453. The Court of Appeals had not been previously faced with that issue. After considering the "New York" and "Wisconsin" rules, the Court adopted the Wisconsin rule, the genesis of which is Ramsdell v. Insurance Co., 197 Wis. 136, 221 N.W. 654 (1928).

In Ramsdell, the building destroyed by fire had been insured by both the lessor and the lessee. Although neither was required to restore the building, it was restored by the lessee, who was reimbursed by his insurer. Subsequently, the lessor sought to recover from its insurer, despite having contributed nothing to the restoration of the building.

The Supreme Court of Wisconsin said:

[T]here was one building insured; there was one fire; there was one loss.... Now it is practically the uniform rule that one must have an insurable interest and a loss before one can collect on a policy of insurance.... We agree that the damage is to be determined as of the time of the fire. But recovery is contingent on the right of the insurer to restore the building to its former usefulness. When there are other related parties by contract, may not the building be restored by others who have the right to do so, and thus defeat the right of recovery by one who has no loss in fact? The court looks to the substance of the whole transaction rather than to seek a metaphysical hypothesis upon which to justify a loss that is no loss.

Ramsdell, 221 N.W. at 655; see also Beman v. Springfield Fire & Marine Ins. Co., 303 Ill.App. 554, 25 N.E.2d 603, 607 (1940); Mission Nat. Ins. Co. v. Schulman, 659 F.Supp. 270, 273 (D.Conn.1986); Stebane Nash Co. v. Campbellsport Mut. Ins. Co., 27 Wis.2d 112, 133 N.W.2d 737 (1965).

The New York rule flows from Foley v. Manufacturers' & Builders' Fire Ins. Co., 152 N.Y. 131, 46 N.E. 318 (1897). The issue in Foley was whether the Foleys "had an insurable interest equal to the full value of the incomplete buildings in the course of construction on their lot when the fire occurred." 46 N.E. at 318. According to the Foley Court, the owners

had no interest to protect in the structures while in their incomplete state, since their destruction by fire would be the loss of the contractors, and not of the owners.... The fact that improvements on land may have cost the owner nothing, or that, if destroyed by fire, he may compel another person to replace them without expense to him, or that he may recoup his loss by resort to a contract liability of a third person, in no way affects the liability of an insurer, in the absence of any exemption in the policy.

Id. at 318-19.

On the other hand, the Court of Appeals in Glens Falls adopted the Wisconsin rule, finding it to be in conformity with the

elementary principle of insurance law that fire insurance ... is a contract of personal indemnity, not one from which a profit is to be realized. As early as 1847, this Court stated that a fire insurance policy was a contract of indemnity and the right to recover 'must be commensurate with the loss actually sustained' by the insured. [citations omitted] ... '[The insured] may recover to the extent of his loss occasioned by the fire, but no more, and he cannot recover if he has sustained no loss.'

219 Md. at 222-23, 148 A.2d 453 (quoting 44 & 45 C.J.S. INSURANCE §§ 224, 915).

The Court said, however, that its decision was "based upon the facts of [that] particular case," id. at 223, 148 A.2d 453, and expressed "no opinion ... upon the question that would have been presented had the contract between the owners and the builders, with reference as to who was to bear the risk of the loss, not been performed." Id. Hence, Glens Falls applies to situations such as that then before the Court. An example of Glens Falls' situation is when more than one party has insured the property and the loss has been recovered by one of them, but another seeks recovery from its insurer. Another is when an insured has two available sources of recovery and seeks to recover from both. Under such circumstances, Glens Falls is apposite. As we have said, the New York rule deems it irrelevant that an insured has recovered from another source, while "[The Wisconsin] rule has as its central principles the characterization of a fire insurance policy as one of indemnity and the principle that there can be no loss if a third party has made repairs at no cost to the insured...." Mission Nat. Ins. Co. v. Schulman, 659 F.Supp. 270, 273 (D.Conn.1986).

In the case at hand, the building was insured only by Cigna and the loss was suffered only by Verzi. Thus, we do not believe Glens Falls is apposite.

In Glens Falls, the insured had not only an insurable interest, but had also suffered a pecuniary loss. As the Court of Appeals said, the "court looks to the substance of the whole transaction rather than to seek a metaphysical hypothesis upon which to justify a loss that is no loss." Id. at 221, 148 A.2d 453 (quoting Ramsdell, supra, 221 N.W. at 655.). In the case before us, the trial court looked to the substance of the whole transaction, noting that Verzi had suffered a loss prior to the building being demolished. Although not previously addressed by Maryland's appellate courts, such circumstances have been considered by other jurisdictions.

III.

A majority of both state and federal courts have held that, when a building is destroyed by fire or other disaster, the insured may recover from its insurer despite the building being subject to removal, provided it is destroyed before its removal. 46 C.J.S. § 1106.c; see e.g., Godwin v. Iowa State Ins. Co., 27 S.W.2d 464 (Mo.Ct.App.), cert. denied, 282 U.S. 880, 51 S.Ct. 83, 75 L.Ed. 777 (1930); American Home Fire Assurance Co. v. Mid West Enter. Co., 189 F.2d 528 (10th Cir.1951); Garcy Corp. v. Home Ins. Co., 496 F.2d 479 (7th Cir.), cert. denied, 419 U.S. 843, 95 S.Ct. 75, 42 L.Ed.2d 71 (1974). This is especially so when, as here, the building's demolition is contingent. As we have said, demolition of the building was contingent on High's obtaining the necessary permits for replacing it with a High's Dairy Store, and the permits were not obtained until six months after the loss.

Aetna State Bank v. Maryland Casualty Co., 345 F.Supp. 903 (N.D.Ill.1972) is a similar case. In Aetna, a borrower...