Eureka-Security Fire & Marine Ins. Co. v. Simon

• Decision Date: 10 May 1965
• Docket Number: CA-CIV,EUREKA-SECURITY,No. 1,1
• Citation: 401 P.2d 759,1 Ariz.App. 274
• Parties: FIRE AND MARINE INSURANCE COMPANY, a corporation, Appellant, v. Louis J. SIMON, an individual, doing business as Simon's Drugs, Appellee. * 44.
• Court: Arizona Court of Appeals

Page 759

401 P.2d 759

1 Ariz.App. 274

EUREKA-SECURITY FIRE AND MARINE INSURANCE COMPANY, a corporation, Appellant, v. Louis J. SIMON, an individual, doing business as Simon's Drugs, Appellee. ^*

No. 1 CA-CIV 44.

Court of Appeals of Arizona.

May 10, 1965.

Rehearing Denied June 10, 1965.

Review Denied July 6, 1965.

Jennings, Strouss, Salmon & Trask, Phoenix, by William F. Haug, Phoenix, for appellant.

Loretta S. Whitney, Phoenix, for appellee.

CAMERON, Judge.

The plaintiff below, appellee herein, Louis J. Simon, filed on action against the defendant below, appellant herein, the Eureka-Security Fire and Marine Insurance Company, for a loss sustained under a business interruption policy issued by the defendant. Judgment was awarded to the plaintiff, and the defendant appeals.

The facts necessary for a determination of this matter are as follows:

Sometime in 1952, the plaintiff was issued a policy of insurance titled 'Business Interruption Form Number 3', which contained the following provisions:

'Attached to and forming part of Policy No. F410001 of the Eureka Security Fire and Marine [Insurance Company] issued to Louis J. Simon, dba Simon's Drugs * * * in amount of $20,000.

'Paragraph No. 1. Subject to all its provisions and stipulations, this policy covers only against loss directly resulting from necessary interruption of business caused by damage to or destruction of real or personal property by the perils insured against occurring during the term of this policy, except as hereinafter specifically excluded or limited, on premises situated at 2829 West Van Buren Street, inside city limits of Phoenix, Arizona, and occupied as drug store.'

At or prior to obtaining this business interruption policy or rider, the plaintiff also had a policy of insurance with the defendant to cover fire loss for merchandise and drugs and fixtures and equipment. Later, the plaintiff, through his independent insurance agent, changed the policy in regards to the other coverages, and at the time of the loss mentioned herein, he carried three different policies with three different companies; one covering merchandise and drugs, another covering fixtures and equipment, and a third, the subject of this suit, the business interruption policy with the defendant. It was under these circumstances, a cancelled main insurance contract and a still valid attached policy, that plaintiff sustained the fire loss and consequent business interruption loss.

Plaintiff was the lessee under a written lease of the west portion of the building in question. The east portion of the building was occupied by a man who operated a grocery store in his portion of the building. On 26 May, 1956, a fire developed in the grocery store, substantially destroying that portion of the building and causing fire, heat, smoke and water damage to plaintiff's drug store and fountain, requiring extensive replastering, painting, retiling of the floor, and other repairs. Plaintiff's drugs and other merchandise were also damaged or destroyed. This necessitated closing the drug store for repairs.

Although plaintiff's losses were covered by three different policies of insurance, the three companies involved were represented by one adjustment company.

In adjusting the stock loss, a dispute arose between the plaintiff and the adjustment company regarding the amount of the stock loss. Because of this dispute, the loss was not settled and paid until after 29 September, 1956, some four months after the fire. Adjustment of the loss on the fixtures was not finally adjusted and paid until 17 October, 1956, some five months after the fire. During this time the plaintiff was out of business.

The testimony indicates that part of the delay in repairing the drug store was occasioned by the landlord who insisted on rebuilding the market first, and repairing the drug store as part of the rebuilding of the market. The business interruption policy contains the following provision concerning recovery, quote 2:

'The measure of recovery in the event of loss hereunder shall be the reduction in 'gross earnings' directly resulting from such interruption of business less charges and expenses which do not necessarily continue during the interruption of business, for only such length of time as would be required within the exercise of due diligence and dispatch to rebuild, repair or replace such part of the property herein described as had been damaged or destroyed, commencing with the date of such damage or destruction and not limited by the date of expiration of this policy, but not exceeding the actual loss sustained by the insured resulting from such interruptions of business. Due consideration shall be given to the continuation of normal charges and expenses including payroll expenses to the extent necessary to resume operations of the insured with the same quality of service which existed immediately preceding the loss.'

Defendant insurance company contends that the plaintiff could have, with the exercise of 'due diligence and dispatch' resumed operations within a sixty day period, and therefore offered to settle for the amount of $2,793.83. Plaintiff disagreed and requested a settlement of $9,133.86, based on a six month period rather than the sixty day period urged by the insurance company. Negotiations between plaintiff and defendant, through the adjustment company, continued until 28 October, 1958, when the plaintiff was notified that the company would settle for the amount of $2,793.83, but no further, and the letter contained the following statement:

'This offer of compromise settlement to avoid litigation cost may be considered withdrawn as of November 18, 1958. If this compromise offer is not acceptable to your client, he may follow whatever course he chooses.'

There were no further contacts between the parties or their agents and all settlement negotiations ceased at this time. Approximately eighteen months later, on 20 May, 1960, the plaintiff filed this action in the Superior Court seeking a recovery under his business interruption insurance policy.

It is admitted by both parties that the original fire policy of the Eureka-Security Fire and Marine Company, being policy number F410001 contained a provision which required the insured to bring suit within twelve months after the loss occurred. It is admitted by defendant insurance company, that this period of time can be and was extended by the negotiations carried on between plaintiff and defendant. Defendant insurance company therefore urges that the plaintiff was required to bring this action against the insurance company within twelve (12) months next following the 18th day of November, 1958, being the cut-off date specified in the letter of 28 October, 1958, and that having brought their action more than twelve months or approximately eighteen months, on 20 May, 1960, that the plaintiff is barred from any recovery under this business interruption policy.

This suit then, is concerned with two questions, one concerning the coverage of the policy itself, and two, concerning the time within which the plaintiff was required to bring his action upon the business interruption policy.

We shall take the latter question first. The business interruption policy was attached to and formed a part of the original fire insurance policy of the defendant company. This original or basic policy contained a provision providing that the insured must pursue his claim within twelve months of the loss, or in this case, within twelve months of the cessation of negotiations between the two parties. This original or basic policy was cancelled by the plaintiff and defendant, but the business interruption policy was maintained in force and effect. The business interruption policy contains no clause concerning the time within which the insured must bring action on the policy. Appellant claims and cites much authority for the proposition that as a matter of general law, a rider which is attached to and forming a part of a separate insuring agreement adopts the provisions and stipulations of the dominant insuring agreement. We are in complete accord with this general view. Were the basic or original policy, number F410001, still in force and effect, the business interruption policy having been attached to and forming a part of said policy, there is no doubt in our minds the twelve month period for bringing suit would be applicable. Holthe v. Iskowitz, 31 Wash.2d 533, 197 P.2d 999 (1948).

However, we are not in accord with this view when the 'separate insuring agreement' has been cancelled and no longer has legal significance by itself.

Of course, the general rule is that policies of insurance are construed most favorably to protect the insured and most strictly against the insurance company. Our court has said as follows:

'We think the courts universally strive to uphold the right of the insured to recover, and, when the insurance company resists payment, place the burden upon it to point out wherein the terms of the policy have been violated, and this must be done with indubitable and conclusive evidence. When this requirement has been met by the company it is entitled to protection as much...