Kolls v. Aetna Casualty and Surety Company

• Decision Date: 14 January 1974
• Docket Number: Civ. No. 11-315-C-2.
• Citation: 378 F. Supp. 392
• Parties: James E. KOLLS and Life Investors, Inc., Plaintiffs, v. AETNA CASUALTY AND SURETY COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Iowa

378 F. Supp. 392

James E. KOLLS and Life Investors, Inc., Plaintiffs, v. AETNA CASUALTY AND SURETY COMPANY, Defendant.

Civ. No. 11-315-C-2.

United States District Court, S. D. Iowa, C. D.

January 14, 1974.

Max Putnam, Des Moines, Iowa, for plaintiffs.

Eugene Davis and Steven C. Cross, Des Moines, Iowa, for defendant.

MEMORANDUM AND ORDER SUSTAINING THE DEFENDANT'S MOTION FOR SUMMARY JUDGMENT.

HANSON, Chief Judge.

The Court has before it cross-motions for summary judgment filed by the defendant on March 12, 1973 and by the plaintiffs on March 30, 1973. The defendant alleges in its motion for summary judgment that there is no dispute as to material facts necessary to grant summary judgment and that the defendant is entitled to summary judgment as a matter of law. The plaintiffs in their motion for summary judgment are requesting only a partial summary judgment and claim that there is no material issue of fact as to certain portions of the Complaint and that they are entitled to partial summary judgment as a matter of law as to these portions of the Complaint.

The plaintiffs in this cause of action are suing to collect additional sums which they claim are due them under an insurance policy written by the Aetna Casualty and Surety Company. (Exhibit "A" attached to the Complaint.) This claim arose out of a fire which was covered by this policy written by Aetna. Although the defendant paid a sum of $631,955.00 under this policy, the plaintiffs claim that the defendant arbitrarily and willfully and in bad faith withheld the sum of $54,920.00. The plaintiffs claim this amount was due under the Replacement Cost Endorsement and the settlement agreement and the plaintiffs claim punitive damages because of the withholding of these funds. The defendant claims that the plaintiffs do not qualify to recover this sum under the Replacement Cost Endorsement and that all sums due under the settlement agreement have been paid.

The plaintiffs in this cause of action are James E. Kolls and Life Investors, Inc. Plaintiff James E. Kolls is a citizen and resident of Ohio and the plaintiff Life Investors, Inc. is an Iowa corporation and a citizen of Iowa. The defendant Aetna Casualty and Surety Company is a foreign corporation doing business in Iowa and a citizen of the State of Connecticut. This Court has jurisdiction of this cause by virtue of the diversity of citizenship of the parties and the fact that the amount in controversy exceeds $10,000.

After an extensive amount of time reviewing the pleadings and exhibits in this cause, it appears that the controversy in this cause of action is mainly an interpretation of the insurance contract and the conditions specified for recovery thereunder. The plaintiffs have admitted the authenticity of 70 documents submitted to them by the defendant and have only reserved objections based upon relevancy. The defendant has admitted the authenticity of over 200 documents submitted to it by the plaintiffs and has only reserved objections based upon relevancy. The defendant does not deny that it carried a policy of insurance that covered the loss which is the basis for this cause of action nor does it deny that a Replacement Cost Endorsement was in effect. The controversy is whether the plaintiffs under the facts as contained in these pleadings and undisputed by the parties were entitled to recover the full replacement cost under this Replacement Cost Endorsement. The second issue appears to be whether there was a contract of estoppel that would compel the defendant to pay the sum of $686,875.00 to the plaintiffs regardless of the conditions in the policy.

The Court first reviews the facts in this case to the time of the fire. Super City, a shopping center located in Denver, Colorado went into operation in March, 1962. This shopping center was occupied by two main tenants: The National Tea Company grocery store and a Spartan Company discount store. On December 20, 1965 a fire occurred which destroyed the greatest portion of the shopping center structure. Insurance on this structure was carried by the Aetna Casualty and Surety Company under Policy No. FP233599 with endorsements. Following this fire, a Notice of Claim for Loss was made to the insurer, as the carrier of the fire insurance on the shopping center. A formal demand for payment of the face amount of the policy which was $935,000 was made by the owners on April 18, 1966. Under the terms of the policy the insured was not entitled to recovery of the full face value of the policy, but a lesser amount that was to be later determined by the parties.

Before a discussion of the settlement agreed upon by the parties, the Court first considers and construes the terms of the insurance policy.

CONSTRUCTION AND INTERPRETATION OF THE INSURANCE POLICY

The basic insuring clause of the insurance policy No. FP233599 provides as follows:

"In consideration of the provisions and stipulations herein or added hereto and of the premium above specified, the Stock Insurance Company . . ., for the term of years specified above . . . at location of property involved, to an amount not exceeding the amount(s) above specified, does insure the insured named above and legal representative, 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, . . . against all direct loss by fire. . . ." (Emphasis added.)

Under the insuring paragraph in the basic policy the insured is entitled to recover an amount not exceeding the "actual cash value of the property at the time of loss." This portion of the policy, however, does not appear to be at issue between these parties. What appears to be at issue is what is termed the Replacement Cost Endorsement to this policy. The plaintiffs claim that they are entitled to recover the replacement cost under this Replacement Cost Endorsement. The defendant claims that the plaintiffs have not fulfilled all the conditions precedent to recovery under this Replacement Cost Endorsement.

The Replacement Cost Endorsement in paragraph 1 provides as follows:

". . . The provisions of this policy are amended to substitute the term `replacement cost' for the term `actual cash value' wherever it appears in this policy, thereby eliminating any deduction for depreciation, subject, however, in all other respects to the provisions of this endorsement and of the policy to which this endorsement is attached."

This endorsement is intended to allow the insured to recover an amount in excess of the actual cash value of the property if certain conditions are complied with.

Paragraph 3 of the Replacement Cost Endorsement provides:

"The insurance sic may elect first to make claim under this policy in accordance with its provisions, disregarding this endorsement, . . . and the Insured may make further claim for any additional liability brought about by this endorsement in accordance with its provisions, provided this Company is notified in writing within 180 days after loss of the Insured's intent to make such further claim."

This provision of the endorsement allows the insured to first recover the "actual cash value" of his loss under the basic policy and then an additional sum to bring his total recovery up to the full "replacement cost" of his loss if the insured complies with the provisions of the Replacement Cost Endorsement.

Paragraph 4 of the Replacement Cost Endorsement provides a limitation for recovery of the insured under the policy including the Replacement Cost Endorsement. This provision is as follows:

"This Company's liability for loss under this policy including this endorsement shall not exceed the smallest of the following amounts (a), (b) or (c) —

a) The amount of this policy applicable to the damaged or destroyed property;

b) The replacement cost of the property or any part thereof, identical with such property on the same premises and intended for the same occupancy and use;

c) The amount actually and necessarily expended in repairing or replacing said property or any part thereof on the same premises and intended for the same occupancy and use."

This portion of the Replacement Cost Endorsement restricts the Company's liability for loss if the party elects to recover under the policy including the Replacement Cost Endorsement. This policy limitation is important in determining the outcome of this controversy.

Paragraph 5 of the Replacement Cost Endorsement provides as follows:

"This Company shall not be liable under this policy including this endorsement for any loss—

a) Occasioned by enforcement of any local or state ordinance or law regulating the construction, repair or demolition of buildings, unless such liability has been specifically assumed under this policy;

b) Unless and until the damaged property is actually repaired or replaced with due diligence and dispatch, and, in no event, unless repair or replacement is completed within a reasonable time after such loss."

This provision of the Replacement Cost Endorsement restricts the application of the Replacement Cost Endorsement to the situation where the damaged property is actually repaired or replaced. There is a controversy in this lawsuit as to whether it is necessary to fully replace the property before a recovery may be made under the Replacement Cost Endorsement. Because of the Court's ruling on paragraph 4 of the Replacement Cost Endorsement and its application to this case, it will not be necessary to rule on the applicability of paragraph 5.

In summary, under this policy the insured upon a loss that is covered by the policy may first elect to recover the actual cash value of his loss under the basic policy. If the insured intends to replace the destroyed property, the insured may recover under the Replacement Cost Endorsement subject to the limitations in paragraph 4 of this...