Franklin v. Lexington Ins. Co.
| Docket Number | WD 84816 |
| Decision Date | 28 June 2022 |
| Parties | Cynthia FRANKLIN, Respondent, v. LEXINGTON INSURANCE COMPANY, Appellant. |
| Court | Missouri Court of Appeals |
Wade Carr, Kansas City, MO, Counsel for Appellant.
Curtis Woods, Kansas City, MO, Co-Counsel for Appellant.
Christopher Roberts, Clayton, MO, Counsel for Respondent.
David Butsch, Clayton, MO, Co-Counsel for Respondent.
Matthew Heath, Kansas City, MO, Co-Counsel for Respondent.
Neil Chanter, Springfield, MO, Counsel for Amicus Curiae.
Before Division Four: Cynthia L. Martin, C.J., Janet Sutton, J. and Laura Denvir Stith, Sp. J.
Lexington Insurance Company (Lexington) appeals the judgment of the Jackson County Circuit Court concluding that it breached an insurance policy and awarding damages to the insured. On appeal, Lexington contends the trial court erred in its interpretation of the policy by applying the actual cash value settlement provisions, in concluding that labor costs could not be depreciated when issuing an actual cash value payment, and in concluding that the insured suffered damages. We affirm.
On approximately May 14, 2016, a storm damaged the roof of Cynthia and Roger Franklin's1 residence in St. Louis, Missouri, and water intruded into the home (the property). Lexington insured the property by a homeowner's insurance policy effective October 1, 2015, to October 1, 2016.
Mrs. Franklin made a claim for the damage under the homeowner's insurance policy. Lexington accepted coverage and assigned an independent adjuster to prepare an estimate for the necessary repairs to the property. Lexington provided the adjuster a written claim assignment with instructions to estimate the actual cash value (ACV) and replacement cost value (RCV) of the loss. Lexington instructed the adjuster to "depreciate materials and sales tax only " when preparing his estimate for Mrs. Franklin's claim. (emphasis in original).
In mid-May 2016, a field adjuster from Lexington assessed the damage to the property and prepared an estimate. The adjuster used the Xactimate software2 to calculate the claim's RCV, depreciation, and ACV. However, contrary to Lexington's instructions, the adjuster depreciated labor costs when calculating the ACV of Mrs. Franklin's loss.3
Through its software depreciation settings, Xactimate provided Lexington the option to depreciate labor costs when calculating the ACV of a claim.4 When the software applies depreciation to labor costs, the total amount of depreciation is increased which then lowers the policyholder's ACV payment.
The estimate provided that the RCV for the damages to Mrs. Franklin's property was $35,988.84.5 From the RCV of $35,988.84, $8,915.52 of depreciation was deducted, leaving an ACV total of $27,073.32. Mrs. Franklin's $3,000 deductible was subtracted from the ACV amount, leaving Mrs. Franklin a "net claim" of $24,073.32.
In July 2016, Lexington issued a payment of $24,073.32 to Mrs. Franklin and her contractors. A July 7, 2016, letter to Mrs. Franklin further explained the payment. The letter indicated that the payment included an "actual cash value payment" for repairs that had been estimated but not yet completed, and the actual replacement costs for other repairs that Mrs. Franklin had completed and for which she had invoices. The letter advised Mrs. Franklin that she could "recover applicable depreciation for dwelling/building items" if she "submit[ted] paid repair invoices or receipts, showing that repairs/replacement have been completed."6
Mrs. Franklin completed some repairs to her property, and communicated this information to Lexington. Periodically from October 2016, until the end of December 2016, a desk adjuster from Lexington attempted to follow-up with Mrs. Franklin and requested additional information about the repairs. After no response, the desk adjuster made the following claim note: Mrs. Franklin did not submit invoices, receipts, or other documentation for further payments from Lexington, including any of the withheld depreciation. Lexington paid Mrs. Franklin a total sum of $24,073.32.
In February 2018, Mrs. Franklin filed a petition in Jackson County Circuit Court asserting that Lexington had breached the insurance contract. In her petition, Mrs. Franklin agreed that ACV could be calculated by "estimat[ing] the cost of repairing or replacing the damaged property, and then ... subtract[ing] depreciation," and that "it was appropriate [for Lexington] to ‘depreciate materials’ when calculating the actual cash value." Mrs. Franklin contended that Lexington breached its contractual obligations by paying her less than the ACV amount to which she was entitled by withholding depreciation from the labor costs. Mrs. Franklin requested that the court enter judgment in her favor in the amount of the depreciated labor costs.
Lexington filed a motion for summary judgment, arguing that it had not breached the contract and Mrs. Franklin had not suffered damages. The trial court denied the motion, and the case proceeded to a bench trial. The parties stipulated that Lexington had withheld $5,424.79 in estimated labor costs from the July 2016 ACV payment to Mrs. Franklin, an amount that Xactimate confirmed. At trial, Mrs. Franklin confirmed that she only sought recovery of the labor costs withheld as depreciation from her ACV payment. Lexington's desk adjuster confirmed that if she knew the field adjuster had depreciated labor costs on Mrs. Franklin's claim before the lawsuit was filed, she would have requested a correction from the adjuster, and would have ultimately issued a higher ACV payment to Mrs. Franklin.
Following the bench trial, the trial court entered judgment in Mrs. Franklin's favor for $5,424.79, plus all taxable court costs and applicable post-judgment interest. The trial court concluded that Lexington breached the contract by improperly withholding $5,424.79 in labor costs from the ACV payment, and the court disagreed with Lexington's contention that the minimum payment owed to Mrs. Franklin under the policy was not ACV but rather the actual costs of repair. Lexington appeals.
Lexington raises three points on appeal. In its first point, Lexington contends that the trial court erred in applying the policy's ACV loss settlement provisions instead of the policy's replacement cost loss settlement provisions. In its second point, Lexington argues it satisfied its payment obligations under the policy and the trial court erred in finding that Mrs. Franklin suffered damages. Finally, Lexington argues that the trial court erred in concluding that Lexington could not withhold depreciation on estimated labor costs from Mrs. Franklin's ACV payment.
We will first address whether the trial court erred in applying the policy's ACV loss settlement provisions instead of the replacement cost loss settlement provisions, Lexington's first point. Then we will turn to Lexington's third and second points; whether Lexington breached its contractual obligation when it deducted labor depreciation from Mrs. Franklin's ACV payment, and whether Mrs. Franklin proved that she suffered damages due to Lexington's breach.
We review court-tried cases under the standard set forth in Murphy v. Carron and will affirm the judgment unless it is against the weight of the evidence, it is not supported by substantial evidence, or it erroneously declares or applies the law. 536 S.W.2d 30, 32 (Mo. banc 1976). "Where ... resolution of the case involves the interpretation of an insurance contract, we give no deference to the circuit court as contract interpretation is a question of law that we review de novo. " Blumer v. Auto. Club Inter–Ins. Exch. , 340 S.W.3d 214, 218 (Mo. App. W.D. 2011) (citing Jones v. Mid.–Century Ins. Co. , 287 S.W.3d 687, 690 (Mo. banc 2009) ).
Lexington argues in its first point that the trial court erred by applying the policy's ACV loss settlement provisions, because, it contends, the policy's replacement cost loss settlement provisions applied to Mrs. Franklin's claim.7 Lexington argues that the policy required Mrs. Franklin to affirmatively choose ACV coverage, and that the evidence demonstrated Mrs. Franklin consistently sought replacement cost coverage. We disagree.
Generally, most property insurance policies have two forms of coverage – ACV and RCV. Under ACV coverage, the primary purpose is indemnity, and insureds who suffer a covered loss are entitled to be put back in the position they were in before the loss. Therefore, ACV permits an insurer to depreciate the claimed loss. With RCV coverage, the insured is entitled to receive a payment representing the ACV of the loss, and if repairs are done, the insured is entitled to an additional payment representing the cost of the repair/replacement, to the extent that the cost exceeds the ACV payment. See Allan D. Windt, 3 INS. CLAIMS AND DISPUTES § 11:35 (6th ed. 2020).8
Here, the loss settlement portion of the policy obligated Lexington to do the following:
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