D & S Realty Inc. v. Markel Ins. Co.

Decision Date10 September 2010
Docket NumberNo. S-09-642.,S-09-642.
PartiesD & S REALTY, INC., appellant, v. MARKEL INSURANCE COMPANY, a corporation, appellee.
CourtNebraska Supreme Court

OPINION TEXT STARTS HERE

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Syllabus by the Court

1. Insurance: Contracts. The interpretation of an insurance policy is a question of law.

2. Statutes. The interpretation of a statute is a question of law.

3. Judgments: Appeal and Error. An appellate court reviews questions of law independently of the lower court's conclusion.

4. Equity: Estoppel. Although a party can seek equitable estoppel in both legal and equitable actions, as its name implies, it is a judicial doctrine that is equitable in nature.

5. Insurance: Contracts. Insurance contracts, like other contracts, are to be construed according to the meaning of the terms which the parties have used.

6. Insurance: Contracts. When the terms of an insurance contract are clear, a court should not resort to rules of construction. Instead, the court will give the terms their plain and ordinary meaning as a reasonable person in the insured's position would understand them.

7. Insurance: Contracts. In an insurance policy, conditions precedent are those which relate to the attachment of the risk, meaning whether the agreement is effective.

8. Insurance: Contracts. Conditions subsequent in an insurance policy are those which pertain to the contract of insurance after the risk has attached and during the existence thereof; that is, those conditions which must be maintained or met after the risk has commenced, in order that the contract may remain in full force and effect. Clauses which provide that a policy shall become void or its operation defeated or suspended, or the insurer relieved wholly or partially from liability upon the happening of some event, or the doing or omission to do some act, are not conditions precedent, but conditions subsequent.

9. Insurance: Contracts: Liability. An exclusion in an insurance policy is a limitation of liability, or a carving out of certain types of loss, to which the insurance coverage never applied.

10. Insurance: Contracts. Vacancy clauses in insurance policies are “increasedhazard” provisions and function as conditions subsequent.

11. Insurance: Contracts: Breach of Contract: Statutes. Statutory provisions like Neb.Rev.Stat. § 44-358 (Reissue 2004) that limit an insurer's ability to avoid liability for breach of increased-hazard conditions exist because the conditions are often so broad that an insured's violation of them is not causally relevant to the loss.

12. Insurance: Contracts: Case Overruled. Regardless of an insurer's labeling, a clause that requires an insured to avoid an increased hazard is a condition subsequent for coverage, overruling Omaha Sky Divers Parachute Club, Inc. v. Ranger Ins. Co., 189 Neb. 610, 204 N.W.2d 162 (1973), and Krause v. Pacific Mutual Life Ins. Co., 141 Neb. 844, 5 N.W.2d 229 (1942).

13. Insurance: Contracts: Warranty. To the extent that Nebraska law permits an insured's statements in the negotiation for a contract to be treated as warranties, the first sentence of Neb.Rev.Stat. § 44-358 (Reissue 2004) applies only to warranties that function as conditions precedent to the policy's being effective.

14. Insurance: Contracts: Warranty. Warranties that are relevant to an insurance policy's being effective are classified as “affirmative” warranties.

15. Insurance: Contracts: Warranty: Breach of Contract. The first and second sentences of Neb.Rev.Stat. § 44-358 (Reissue 2004) are mutually exclusive in their application, and the contribute-to-the-loss standard of the second sentence applies to breaches of conditions after the risk attaches and the insurance policy is effective. That is, the contribute-to-the-loss standard applies to breaches of conditions subsequent and continuing warranties that function as conditions subsequent.

16. Insurance: Contracts: Warranty: Words and Phrases. A promissory warranty is one by which the insured stipulates that something shall be done or omitted after the policy takes effect and during its continuance, and has the effect of a condition subsequent.

17. Insurance: Contracts. For insurance policies, the term condition subsequent comprises both preloss conditions, to which the contribute-to-the-loss standard applies, and postloss conditions, to which the standard does not apply.

18. Insurance: Contracts: Warranty: Case Overruled. The contribute-to-the-loss standard in the second sentence of Neb.Rev.Stat. § 44-358 (Reissue 2004) applies to preloss conditions subsequent and promissory warranties, overruling Coppi v. West Am. Ins. Co., 247 Neb. 1, 524 N.W.2d 804 (1994).

19. Insurance: Contracts. A vacancy clause in an insurance contract is not an exclusion; it is a condition subsequent to which the contribute-to-the-loss standard applies.

20. Insurance: Contracts: Waiver: Equity: Estoppel. Waiver and estoppel are distinct legal concepts, but Nebraska courts do not strictly apply the elements of equitable estoppel when an insured claims that an insurer has waived a policy provision.

21. Insurance: Contracts: Waiver: Estoppel. If the evidence shows that the insurer has waived a policy provision, it may be estopped from denying liability where, by its course of dealing and the acts of its agent, it has induced the insured to pursue a course of action to his or her detriment.

22. Waiver: Words and Phrases. A waiver is a voluntary and intentional relinquishment of a known right, privilege, or claim, and may be demonstrated by or inferred from a person's conduct.

23. Insurance: Contracts: Waiver. An insurer may waive any provision of a policy that is for the insurer's benefit, including vacancy provisions.

24. Waiver: Estoppel. Ordinarily, to establish a waiver of a legal right, there must be a clear, unequivocal, and decisive act of a party showing such a purpose, or acts amounting to an estoppel on his or her part.

25. Contracts: Waiver. A party may waive a written contract in whole or in part, either directly or inferentially.

26. Contracts: Waiver: Proof. A party may prove the waiver of a contract by (1) a party's express declarations manifesting the intent not to claim an advantage or (2) a party's neglecting and failing to act so as to induce the belief that it intended to waive.

27. Insurance: Contracts: Waiver. Whether an insurer may waive an increased hazard condition does not depend upon whether the insured's breach of the condition occurred before or after the risk attached.

28. Insurance: Contracts: Warranty: Breach of Contract: Liability. When an insurer knows of a breach of condition or warranty that permits it to treat the policy as void, and the insurer continues to accept premiums, its conduct shows its intent to treat the policy as valid despite the breach. But waiver does not apply when the insured's breach of an increased hazard provision did not result in an absolute forfeiture of the policy and the insurer continues to be liable for loss from other covered causes.

Charles F. Gotch, James D. Garriott, and David A. Blagg, of Cassem, Tierney, Adams, Gotch & Douglas, Omaha, for appellant.

Richard J. Gilloon and Heather Veik, of Erickson & Sederstrom, P.C., Omaha, for appellee.

HEAVICAN, C.J., WRIGHT, CONNOLLY, GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

CONNOLLY, J.

I. SUMMARY

Appellant, D & S Realty, Inc. (D & S), owned a building known as the North Tower, located in Omaha, Nebraska. Markel Insurance Company (Markel) insured the building. After the building incurred water damage, Markel denied liability. Markel claimed that D & S violated a policy clause whichprovided that Markel would not be liable for water damage if the insured property had been vacant for more than 60 consecutive days before the loss or damage occurred.

At the heart of D & S' breach of contract action is the interpretation and application of Neb.Rev.Stat. § 44-358 (Reissue 2004). Section 44-358, in part, precludes an insurer from denying liability for an insured's breach of a warranty or condition unless the breach existed at the time of the loss and contributed to the loss. Before trial, D & S argued that the contribute-to-the-loss standard applied to its alleged breach of the vacancy provision. It alleged the breach did not contribute to the loss. Markel countered that the statute did not apply. The court agreed with Markel.

At trial, the court found as a matter of law that the policy was in effect and that the building was vacant for more than 60 days. The court also refused to instruct the jury on, or to allow D & S to argue, the following: (1) § 44-358 prevented Markel from denying liability based upon the vacancy clause; or (2) Markel waivedthe provision or was estopped from denying liability because it had accepted premiums after learning that the building was vacant.

The only issues before the jury were whether Markel had wrongfully denied coverage or whether the policy terms excluded D & S' loss. The jury returned a verdict for Markel.

We conclude that the court erred in ruling that § 44-358 did not apply to the vacancy clause. Because it applied, the court should have allowed the jury to decide whether D & S' breach of the vacancy clause contributed to the loss. But we conclude that the court did not err in refusing to instruct the jury on D & S' claim of waiver and estoppel.

II. BACKGROUND

In January 2003, in preparation for renovations, a D & S employee turned off the heating system. But he did not drain the pipes or put in antifreeze to prevent damage. Three days later, the pipes burst and the building sustained water damage.

D & S claimed the loss under its insurance policy. The policy provided coverage for damage to the North Tower and personalproperty resulting from covered causes of loss, subject to various conditions and exclusions. The “Loss Conditions” section contained a “Vacancy” clause. It provided that [i]f the building...

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