Farmers Union Mut. Ins. Co. v. Oakland, 91-213
| Decision Date | 28 January 1992 |
| Docket Number | No. 91-213,91-213 |
| Parties | FARMERS UNION MUTUAL INSURANCE COMPANY, Plaintiff and Respondent, v. Gary OAKLAND, individually and as Personal Representative of the Estate of Loretta Oakland, d/b/a Oakland Holding Company, Defendants and Counterclaimants/Appellants. |
| Court | Montana Supreme Court |
James A. Poore, III, Douglas A. Buxbaum, and Patrick M. Sullivan, Poore, Roth and Robinson, P.C., Butte, for defendants and counterclaimants/appellants.
James L. Jones, Dorsey and Whitney, Billings, Robert F. James, James, Gray & McCafferty, Great Falls, for plaintiff and respondent.
On July 20, 1988, Farmers Union Mutual Insurance Company filed a declaratory judgment action against Gary and Loretta Oakland in the Thirteenth Judicial District Court in Yellowstone County. The District Court held that the insurance policy issued to the Oaklands by Farmers Union did not require Farmers Union to pay for additional costs related to the removal of materials containing asbestos during reconstruction of the insureds' property. Gary Oakland appeals. We reverse.
The issue on appeal is whether the District Court erred in holding that a "code exclusion" clause in the insurance policy relieved Farmers Union of any obligation to pay additional costs for the removal of debris from the insured's fire-damaged building, when the cost of removal was increased because of regulations related to the removal of materials that contain asbestos.
The Oaklands purchased the Broadwater Center, a commercial property in Billings, on November 1, 1979. The Broadwater Center was an older building, and it contained asbestos pipe insulation and floor tile. On October 1, 1986, the Oaklands purchased a fire and casualty insurance policy for the Broadwater Center from Farmers Union. On January 4, 1988, a fire damaged the insured property.
Gary Oakland immediately notified Farmers Union of the loss. Farmers Union retained an independent adjuster to handle the claim. Oakland then hired his own adjuster. The adjusters disagreed on how to obtain reconstruction bids from contractors. In addition, they disagreed about whether the "code exclusion" clause in the insurance policy relieved Farmers Union of the obligation to pay the higher costs associated with removal and disposal of debris that contained asbestos.
Consequently, in mid-February of 1988 Farmers Union decided to submit the matter to an appraiser selected by each party and an umpire selected by the appraisers. On May 15, 1988, the umpire determined that the total loss was worth $773,020. The umpire's award attributed $70,540 to the cost of asbestos removal.
Almost immediately a dispute arose on the question of whether the appraisers had subtracted a deduction for depreciation on certain items as required by the insurance policy. Farmers Union therefore sought a declaratory judgment regarding the asbestos and depreciation issues. The Oaklands filed a counterclaim asserting that Farmers Union had acted in bad faith by unnecessarily prolonging the adjustment process.
Both parties moved for summary judgment on the asbestos, depreciation, and bad faith issues. On January 18, 1990, the District Court entered an order disposing of several pending motions. This order denied the pending summary judgment motions on the asbestos and depreciation issues. However, the court appended a memorandum to the order in which it stated:
In connection with the asbestos issue, a question has been raised as to whether the Seventy Thousand Five Hundred Forty and No/100ths Dollars ($70,540.00) figure is the amount determined to be the costs of removing the asbestos material or is the amount in excess of what it would have cost to remove the material had it not contained asbestos. The Court has concluded [Farmers Union] is not required to pay any increased cost of repair or reconstruction by reason of the statutes and ordinances regulating asbestos and will permit a deduction from the total costs of repair or replacement of any such increased cost.
Subsequently, the parties settled the depreciation and bad faith issues out of court, leaving only the asbestos issue for final decision. The District Court then issued a final order and judgment declaring that Farmers Union was entitled to a deduction for the increased cost of asbestos removal. This appeal is therefore limited to the asbestos issue.
According to Oakland, the materials at issue here are of two types: (1) materials containing asbestos that were directly damaged in the fire; and (2) undamaged materials containing asbestos that must be torn out in order to gain access to damaged materials. He does not seek compensation for the removal of any asbestos that it was not necessary to remove as part of the repair process.
Farmers Union bases its position on the following clauses in the insurance policy:
III. EXCLUSIONS
Section I [the coverage provision] does not apply to loss or damage caused by or resulting from:
1. Enforcement of any ordinance or law, either directly or indirectly, regulating the construction, repair or demolition of buildings or structures. [Emphasis added.]
and
Business Pac Deluxe Policy Declarations
....
[Farmers Mutual] ... does insure ... [Gary and Loretta Oakland] ... to the extent of the actual cash value of the property at the time of loss, but not exceeding the amount which it would cost to repair or replace the property with material of like kind and quality within a reasonable time after such loss without allowance...
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