Dodson Aviation, Inc. v. Rollins, Burdick, Hunter of Kansas, Inc.

• Decision Date: 15 March 1991
• Docket Number: No. 65159,65159
• Parties: DODSON AVIATION, INC., A Kansas Corporation, et al., Appellants, v. ROLLINS, BURDICK, HUNTER OF KANSAS, INC., A Kansas Corporation, et al., Appellees.
• Court: Kansas Court of Appeals

Page 1319

807 P.2d 1319

15 Kan.App.2d 314

DODSON AVIATION, INC., A Kansas Corporation, et al., Appellants, v. ROLLINS, BURDICK, HUNTER OF KANSAS, INC., A Kansas Corporation, et al., Appellees.

No. 65159.

Court of Appeals of Kansas.

March 15, 1991.

Review Denied June 28, 1991.

Syllabus by the Court

1. A basic principle in the construction of contracts is that an ambiguity in the language of the contract will be strictly construed against the party who drafted the provision. This rule is particularly applicable to the interpretation of insurance contracts and requires liberal construction in favor of the insured.

2. Coverage clauses of insurance policies are to be broadly interpreted to afford the greatest possible protection to the insured while exclusionary clauses are interpreted narrowly.

3. An insurance contract may be found ambiguous when, after the application of the relevant rules of interpretation to the face of the insurance contract, the words intended to express the meaning and intent of the parties may be construed to reach more than one possible meaning.

4. The test to determine the intention of the parties to an insurance contract is what a reasonable person in the position of the insured would have understood the policy terms to mean.

5. Where an insurance policy coverage clause limits liability of the insurer to not more than the limits of the policy minus the deductible or to what it would cost to repair or replace the property, "repair" is defined to mean repairs such as would restore the property to substantially the same condition of value and serviceability as existed before the damage occurred.

6. When repairs fail to fully restore the property, the measure of damages is the value of the property immediately before the damage, less the value of the property immediately after the repairs have been made, plus the reasonable cost of the repairs.

7. Limitations in an insurance policy containing a "repair, restore or replace clause" and a clause limiting coverage to actual cost of repair as evidenced by bills submitted to the insured when repairs are effectuated at the direction of the insured create an ambiguity and must be construed in favor of the insured. The insured's loss is not to be determined by who repaired the property or the extent of repairs made. The measure of damages is that measure applied to "repair, restore or replace" clauses.

8. A provision in an insurance policy voiding the policy in the event of fraud or false swearing by the insured before or after loss does not apply to false statements occurring after legal proceedings have begun.

Richard W. Byrum and Keven M.P. O'Grady of Ferree, Bunn & Byrum, Chartered, Overland Park, for appellants.

Richard O. Skoog, Ottawa and R. Douglas Noah, Jr. of Gardere & Wynne, Dallas, Tex., for appellees.

Before RULON, P.J., and BRAZIL, J., and M. KAY ROYSE, District Judge, assigned.

BRAZIL, Judge:

In an action for breach of an insurance contract, plaintiffs Dodson Aviation, Inc., Dodson Investments, Inc., and Dodson International Parts, Inc., (Dodson) appeal decisions of the district court granting defendants Underwriters' motion in limine, overruling Dodson's objections to certain jury instructions, and denying its motion for a new trial.

Dodson was the owner of a Cessna 441 Conquest aircraft which was damaged in a hailstorm. The aircraft was insured by a hull insurance policy of which the defendants (Underwriters) were the individual underwriters. Hull insurance is defined as: "Marine or aviation insurance covering loss to vessel or plane or its machinery or equipment." Black's Law Dictionary 804 (6th ed. 1990).

Following the initial inspection of the plane by Joseph Kieszkowski, Jr., an insurance adjuster for Underwriters, Dodson obtained two estimates of repair and submitted them to Underwriters. Yingling Aircraft, Inc., estimated the repair at $89,112.45, and Kansas City Aviation Center estimated the repair at $151,000.

Allegedly acting upon a settlement offer from Underwriters, Dodson flew the plane to Goodner Brothers Aircraft, Inc., in Arkansas for what was described as a bottom-of-the-line repair in the amount of $10,000.

Kieszkowski believed the Yingling estimate to be too high and some of the work indicated in it to be excessive. For this reason, he made arrangements with Dodson to bring Warren H. Hartquist, an employee of Van Dusen Aviation Services, to Dodson to inspect the plane and render an estimate of repair. Although Goodner had not yet completed its repairs, the plane was returned to Dodson for Hartquist's inspection. Hartquist estimated repairs at $17,770. The insurance policy contained a deductible of $25,000.

No settlement was ever arranged between the parties, so Dodson filed an action claiming breach of the insurance contract. Underwriters answered that the damage to the airplane was less than the deductible amount and that the policy was void due to misrepresentations, false swearing, and attempted fraud by Dodson.

Prior to trial, Underwriters filed a request for interpretation of the contract of insurance as it related to the measure of damages. The court issued a letter opinion in which it held that the measure of damages in this case would be the cost of repair and found certain other factors, including loss of value, which Dodson urged as the measure of damages, were not relevant. Underwriters also submitted a motion in limine seeking to exclude any testimony at trial concerning the fair market value of the airplane as irrelevant and, pursuant to K.S.A. 60-452, to also exclude any testimony concerning settlement negotiations. The motion was granted.

At trial, the jury found the cost of repair was $10,000 and that Dodson had concealed or misrepresented some material fact or circumstance or engaged in some false swearing concerning its claim for hail damage.

On appeal, Dodson argues that the trial court erred by (1) excluding all evidence concerning loss of value of the aircraft, (2) excluding testimony of Dodson showing that it believed a settlement had been reached, and (3) instructing the jury the insurance policy would be void if the insured concealed or misrepresented material facts. We reverse and remand for a new trial.

The trial court made two rulings which Dodson now disputes. Prior to trial, after examining the terms of the insurance contract, the court held that the measure of damages to the aircraft would be the cost of repairs and "no other factors, such as depreciation of value, deterioration, loss of use or reduction in fair market value, are relevant to the issue of damages in this case." (Emphasis added.) Then, at trial, the court granted Underwriters' motion in limine excluding any testimony at trial concerning fair market value or actual sales value of the aircraft at any time on the ground that such information was not relevant to the damages to which Dodson was entitled.

Dodson argued then, as it argues now, that according to Venable v. Import Volkswagen, Inc., 214 Kan. 43, Syl. p 6, 519 P.2d 667 (1974), the proper measure of damages in Kansas, where repair fails to restore the property to its former condition and value, is the value of the property immediately before the damage less the value immediately after repairs are made, plus the reasonable cost of the repairs and minus the deductible. Dodson contends the district court misinterpreted Venable and erred by refusing to consider loss of value as a measure of damages. At trial, Dodson made a proffer of Dodson's vice-president's testimony, indicating he would testify to the value of the aircraft before the damage and after the repairs, to show a $99,000 loss in value.

The matters at issue concern a conclusion of law and this court's review of conclusions of law is unlimited. Hutchinson Nat'l Bank & Tr. Co. v. Brown, 12 Kan.App.2d 673, 674, 753 P.2d 1299, rev. denied 243 Kan. 778 (1988).

1. Exclusion of Evidence.

The limitations section of Dodson's policy provides in part:

"LIMIT OF LIABILITY: SETTLEMENT OPTIONS: NO ABANDONMENTS.

"The liability of the Underwriters for ... loss of or damage to the aircraft shall not exceed the amount of insurance set out in the Declarations, less the ... deductible, nor what it would cost to repair or replace the aircraft or parts thereof with other of like kind and quality.... Underwriters may pay for the loss in money or may repair or replace the aircraft or parts thereof, as aforesaid ....

"In the case of partial ... loss of or damage to the aircraft when repairs are effected by the Insured the liability of the Underwriters shall not exceed the actual cost of any parts or materials necessary to effect repairs or replacement plus 150% of the actual cost of labor to the Insured ... when the repairs are made by other than the Insured, the actual costs as evidenced by bills rendered to the Insured ....

"In no event shall the liability of the Underwriters for partial physical loss of or damage to the aircraft exceed the amount for which the Underwriters would be liable were the loss payable as a total loss." (Emphasis added.)

The trial court found Venable to be distinguishable from the present case because in Venable the repairs were made by and at the election of the insurer, while in the present case the insured made the repairs before any election was ever made by the insurer. The court seemed to believe that the rule in Venable would only apply where the insurer elects to repair, the repairs are faulty, and the amount of damages is based on the faulty work.

A careful reading of Venable provides little support for the trial court's position. Venable states:

"When an insurer makes an election to repair or build under a 'repair, restore or replace clause' in its policy the insurer is then obligated to put the vehicle in substantially the same condition as it was prior to the collision so as to render it as valuable and as serviceable as before." 214 Kan. at 48, 519...