Manduca Datsun, Inc. v. Universal Underwriters Ins. Co.

• Decision Date: 31 January 1984
• Docket Number: No. 14068,14068
• Citation: 106 Idaho 163,676 P.2d 1274
• Parties: MANDUCA DATSUN, INC., Cross-Claimant, Appellant, and Cross-Respondent, v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY, a corporation, Cross-Defendant, Respondent, and Cross-Appellant.
• Court: Idaho Court of Appeals

Page 1274

676 P.2d 1274

106 Idaho 163

MANDUCA DATSUN, INC., Cross-Claimant, Appellant, and Cross-Respondent, v. UNIVERSAL UNDERWRITERS INSURANCE COMPANY, a corporation, Cross-Defendant, Respondent, and Cross-Appellant.

No. 14068.

Court of Appeals of Idaho.

Jan. 31, 1984.

Roger D. Ling, Ling, Nielsen & Robinson, Rupert, for appellant.

Edward L. Benoit, Benoit, Alexander & Sinclair, Twin Falls, for respondent.

BURNETT, Judge.

This case presents a host of issues concerning the extent of loss covered by a fire insurance policy. The insured, Manduca Datsun, suffered substantial fire damage to a building where it operated an automobile dealership. The loss was covered by a policy issued by Universal Underwriters; but the amount of loss recoverable under the policy became the subject of dispute. This controversy found its way to court when several of Manduca's creditors, seeking payment of debts owed by the distressed dealership, sued both Manduca and the insurance carrier. The carrier tendered sufficient money to satisfy the creditors' claims, but Manduca cross-claimed against the carrier for additional recovery under the policy. Judgment was entered on the cross-claim, allowing some but not all of the additional recovery sought. Both the dealership and the carrier have appealed.

The general issues, consolidated by subject matter, are (1) whether the district court properly determined the amount of loss caused by damage to the building and to fixtures; (2) whether the court correctly interpreted a "loss of earnings" clause in the policy; (3) whether damage to asphalt around the building should be recoverable under a "debris removal" clause; and (4) whether the parties are entitled to certain litigation costs and attorney fees. We affirm the district court's rulings on damage to the building and fixtures, loss of earnings, and attorney fees. We reverse the court's decisions on debris removal and certain litigation costs. Finally, we award the dealership attorney fees on appeal.

I

We first consider the district court's determination of loss occasioned by damage to the building and to fixtures. This issue focuses upon three controverted points: (a) the "actual cash value" of the building, (b) the inclusion of architect's fees in computing the building loss, and (c) the value of fixtures destroyed.

A

The insurance policy provides coverage for damage to the building, up to the amount of its "actual cash value." ¹ The policy defines this term as

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 for any increased cost of repair or reconstruction by reason of any ordinance or law regulating construction or repair....

The district court construed this definition to require that the cost to construct a new building be determined, and that a deduction be made for depreciation of the prior building. The court deducted twenty percent. The dealership now argues that no such deduction should have been made, or--in any event--that twenty percent was too much. The carrier contends that it was not enough.

The policy definition of "actual cash value" is silent on whether depreciation should be deducted. Consequently, this case is unlike Boise Ass'n of Credit Men v. United States Fire Insurance Co., 44 Idaho 249, 263, 256 P. 523, 527 (1927), where the insurance policy specifically referred to a "proper deduction for depreciation" and such a deduction was upheld. However, it would be inappropriate to leap from Boise Ass'n to a negative inference that no deduction should have been made here. The policy must be read and considered as a whole. E.g., Watkins v. Federal Life Insurance Co., 54 Idaho 174, 29 P.2d 1007 (1934).

The insurance contract here is a general, multi-risk "Unicover" policy. The policy contains certain basic coverages and a menu of optional coverage choices. Among these choices is an endorsement specifically covering "replacement cost (without deduction for depreciation)." This endorsement is part of the policy document jointly introduced by both parties as an exhibit at trial. The policy, read and considered as a whole, identifies different coverages for "actual cash value" and "replacement cost (without deduction for depreciation)." The district court found--and it is uncontroverted--that the dealership did not purchase the latter coverage. Rather, the dealership purchased coverage of "actual cash value" at a lesser premium. We hold that the court correctly interpreted the dealership's insurance coverage to require a depreciation deduction. See generally 6 J. APPLEMAN & J. APPLEMAN, INSURANCE LAW AND PRACTICE § 3823 (1972 & Supp.1982); Annot., 61 A.L.R.2d 711, 715-18, 725-33 (1958).

The next inquiry is whether the twenty percent deduction made by the district court was appropriate. This is a question of fact. Our standard of review on factual questions is that the trial judge's finding will not be disturbed unless it is clearly erroneous. I.R.C.P. 52(a). A finding will not be deemed clearly erroneous if it is supported by substantial and competent, though conflicting, evidence. E.g. Rasmussen v. Martin, 104 Idaho 401, 659 P.2d 155 (Ct.App.1983).

The court received varying expert opinions that the depreciation percentage should have been either 35%, 30%, 25%, 20% or 6.5% of the actual cash value. In addition, there was evidence that this type of building ordinarily would have a useful life of fifty years. The building had been remodeled shortly before the fire and had an estimated remaining useful life of forty years. Weighed against this record, the court's finding that a twenty percent factor should be applied is not clearly erroneous and will not be disturbed.

B

We now examine the insurance carrier's assertion that the district court erred when computing "actual cash value," by including an architect's fee of $1,000 in the cost of reconstruction. The dealership has countered by urging that the fee amount was insufficient.

The policy is silent on architect's fees, and we have been cited no controlling authority on this point. In essence, the carrier suggests that an architect would be an unnecessary expense of reconstruction. Thus, what on the surface seems to be an issue of law actually turns upon a determination of fact--the necessity of an architect for this particular project. The record contains competent testimony that a prudent investor in a reconstructed building, like the structure at issue here, would utilize the professional services of an architect. We hold that the district court did not commit clear error by including the cost of such services as a component in determining the reconstruction costs, and ultimately the "actual cash value," of the building.

The amount of the fee also raises a question of fact. The record discloses conflicting testimony to the scope and cost of architectural service necessary for reconstruction. The court's finding that $1,000 would be appropriate, while an imprecise estimate, is within the evidence. It is not clearly erroneous and will not be overturned.

C

The carrier next challenges the district court's findings as to the value of various fixtures destroyed in the fire. This, too, is an issue of fact; but it must be viewed in light of the appropriate legal test for valuing fixtures. The insurance policy establishes no test other than the general standard of "actual cash value." In Boise Ass'n of Credit Men v. United States Fire Insurance Co., supra, our Supreme Court stated that "such property should be appraised according to the actual worth of the articles to the owner, for use in the condition in which they were at the time of the fire, excluding any fanciful or sentimental consideration." Id. 44 Idaho at 264, 256 P. at 527.

A witness for the dealership testified concerning both the replacement cost and actual cash value, taking into account usage and depreciation. Witnesses for the carrier testified that the fair market value of the fixtures, in the second-hand market, was less than either the actual cash value or replacement cost suggested by the dealership. We believe the valuation method employed by the dealership's witness was consistent with Boise Ass'n. His testimony concerning actual cash values, although inconsistent with the lower figures submitted by the carrier's witnesses, was not inherently incredible. The district court generally followed the values supplied by the dealership's witness in determining the extent of fixture loss. The court's findings will not be set aside.

II

We now turn to the district court's denial of any recovery for interruption of business under the "loss of earnings" endorsement to the policy. ² The district court made factual findings that when the fire occurred, Manduca was "basically out of business" and in a "minus working capital condition;" that its inventory financing had been terminated by a bank; and that it had "ceased business operations." Accordingly, the court refused to allow any recovery for loss of earnings.

The record substantially supports the district court's findings. The dealership's bank financing had been terminated. Approximately one month before the fire, the dealership's work force had been reduced from more than twenty employees to a manager and a bookkeeper. The trial court also found, with support in the record, that the manager had informed all employees the business was closing and everyone would be terminated. The evidence further indicated that the dealership was making no payments on its debts when the fire occurred. Finally, although the dealership had an inventory of cars and parts, there is a conflict in the evidence as to whether sales were generating any net profit before the fire.

On appeal, the dealership has pointed to such conflicts in the evidence. It contends that it was still a going concern at the time of the fire, and that the business...