Olson v. Le Mars Mut. Ins. Co. of Iowa

• Decision Date: 13 May 2005
• Docket Number: No. S-04-045.,S-04-045.
• Citation: 269 Neb. 800,696 N.W.2d 453
• Parties: Norris OLSON, appellee, v. LE MARS MUTUAL INSURANCE COMPANY OF IOWA, appellant.
• Court: Nebraska Supreme Court

696 N.W.2d 453

269 Neb. 800

Norris OLSON, appellee, v. LE MARS MUTUAL INSURANCE COMPANY OF IOWA, appellant.

No. S-04-045.

Supreme Court of Nebraska.

May 13, 2005.

Albert M. Engles, Jason R. Yungtum, and Robert B. Quigley, of Engles, Ketcham, Olson & Keith, P.C., Omaha, for appellant.

Kenneth F. George, of Jacobsen, Orr, Nelson, Wright & Lindstrom, P.C., Kearney, for appellee.

HENDRY, C.J., WRIGHT, CONNOLLY, GERRARD, STEPHAN, McCORMACK, and MILLER-LERMAN, JJ.

STEPHAN, J.

A grain storage building owned by Norris Olson and insured by Le Mars Mutual Insurance Company (Le Mars) was damaged by hail. The cost of repairing the damage was $95,040. The issue presented is whether the insurance policy permits the insurer to deduct a depreciation factor from the repair cost in adjusting the loss. We agree with the district court for Buffalo County that it does not.

BACKGROUND

Olson purchased a commercial property insurance policy from Le Mars to insure a grain storage building located in Buffalo County, Nebraska, for the period from March 20, 2002, through March 20, 2003. The policy insured the property against various types of loss, including hail. The coverage limit was $160,000, with coinsurance of 80 percent and a $500 deductible. The policy included the following provisions:

4. Loss Payment

a. In the event of loss or damage covered by this Coverage Form at our option, we will either:

1) Pay the value of lost or damaged property;

2) Pay the cost of repairing or replacing the lost or damaged property;

3) Take all or any part of the property at an agreed or appraised value; or 4) Repair, rebuild or replace the property with other property of like kind and quality.

b. We will give notice of our intentions within 30 days after we receive the sworn statement of loss.

c. We will not pay you more than your financial interest in the Covered Property.

....

7. Valuation

We will determine the value of Covered Property in the event of loss or damage as follows:

a. At actual cash value as of the time of loss or damage....

The policy also included various "optional coverages," including replacement cost coverage, which Olson did not purchase. With respect to this coverage, the policy provided "Replacement Cost (without deduction for depreciation) replaces Actual Cash Value in the Loss Condition, Valuation, of this Coverage Form."

On June 12, 2002, the insured building was damaged by hail. The building was 42 years old at the time of the damage. Between June 13 and 28, an employee of Interstate Structures, Inc., inspected and examined the building at Olson's request and determined that the cost for material, labor, and equipment to repair the hail damage would be $95,040.

Olson demanded payment from Le Mars for $94,540, representing the cost of repair less the $500 deductible. On July 18, a claims service prepared an adjuster summary for Le Mars in which it estimated total repair costs at $94,576 and deducted $36,710.40 from that total for depreciation, thereby arriving at an "ACV," or actual cash value, in the amount of $57,865.60. Le Mars thereafter claimed the actual cash value of the claim was $57,865.60 and offered Olson $57,365.60 (representing $57,865.60 less the $500 deductible), which he refused.

Olson filed a petition in the district court for Buffalo County seeking judgment against Le Mars in the amount of $94,540 and an attorney fee. The parties subsequently filed cross-motions for summary judgment. In support of his motion, Olson submitted the pleadings, a copy of the insurance policy, the adjuster's summary, his affidavit, and the affidavits of Dennis Land, a Nebraska general real estate certified appraiser, and the employee of Interstate Structures. In their affidavits, Land and Olson stated that shortly before the building was damaged, Land offered to purchase it from Olson for $200,000, and Olson made a counteroffer to sell for $225,000. Land had leased the building from Olson for the 3-year period prior to his offer and had extensive, full, and complete knowledge and information regarding the building. Land averred that he was still willing to pay $200,000 for the building immediately prior to the damage. In his affidavit, the certified appraiser stated that the building had a fair market value of $200,000 as of June 12, 2002, immediately prior to the hail damage. On September 1, Olson sold the building to Land in its damaged state for $100,000.

Le Mars submitted the affidavits of an underwriter employed by Le Mars and an analyst of market conduct regulatory compliance and coverage interpretation. The underwriter stated in his affidavit that it was "the standard and practice of the insurance industry to adjust a partial loss for property damage to the insured premises on a policy such as the one issued to [Olson] by reducing the actual cash value (cost to repair) by depreciation." He opined that because the building was approximately 40 years old at the time of the loss and had a useful life of 100 years, it was appropriate for Le Mars to apply a 40-percent depreciation factor. The analyst stated in his affidavit that the "correct and only method for determining `actual cash value' under [Olson's] policy is replacement cost less depreciation."

The district court granted summary judgment in favor of Olson, noting that the facts were generally undisputed and that the dispositive issue involved interpretation of the meaning of "actual cash value" as used in the policy. The court was not persuaded by Le Mars' experts, noting that the underwriter "defines actual cash value as cost to repair ... then states that the insurance practice is to reduce actual cash value by depreciation" and that the analyst

suggests that actual cash value must mean "replacement costs less depreciation." If the definition[s] of [Le Mars'] own experts are to have meaning one must also then conclude that cost of repair is synonymous with cost of replacement [and] must equate actual cash value with replacement costs absent a deduction for depreciation.

Opining that Le Mars was seeking to utilize "a special meaning and definition for actual cash value as a term of art in the insurance industry," the court held that actual cash value means fair market value, noting that the "determination of fair market value in of [sic] itself includes depreciation of the asset from its original value," and awarded Olson $99,500 to reflect the loss of fair market value to the building less the $500 deductible. Olson was allowed to amend his petition to conform to the evidence and the amount of damages awarded by the court.

ASSIGNMENTS OF ERROR

Le Mars assigns, consolidated and restated, that the district court erred (1) in determining that actual cash value in the general loss provision of a property insurance policy means the market value of real property before and after a loss, rather than repair cost minus depreciation; (2) in failing to find that a deduction for depreciation upholds the terms of the policy as intended by the parties at the time of policy formation in this case; and (3) in making its determination as to actual cash value based on insufficient evidence.

STANDARD OF REVIEW

Summary judgment is proper when the pleadings and evidence admitted at the hearing disclose that there is no genuine issue as to any material fact or as to the ultimate inferences that may be drawn from those facts and that the moving party is entitled to judgment as a matter of law. Dworak v. Farmers Ins. Exch., 269 Neb. 386, 693 N.W.2d 522 (2005); Range v. Abbott Sports Complex, 269 Neb. 281, 691 N.W.2d 525 (2005).

When adverse parties have each moved for summary judgment and the trial court has sustained one of the motions, the reviewing court obtains jurisdiction over both motions and may determine the controversy which is the subject of those motions or make an order specifying the facts which appear without substantial controversy and direct such further proceedings as the court deems just. Big River Constr. Co. v. L & H Properties, 268 Neb. 207, 681 N.W.2d 751 (2004).

The meaning of an insurance policy is a question of law, in connection with which an appellate court has an obligation to reach its own conclusions independently of the determination made by the lower court. Auto-Owners Ins. Co. v. Home Pride Cos., 268 Neb. 528, 684 N.W.2d 571 (2004); Poulton v. State Farm Fire & Cas. Cos., 267 Neb. 569, 675 N.W.2d 665 (2004).

ANALYSIS

Key facts are not in dispute. Olson's building was insured under the Le Mars policy when it was partially damaged by hail, which is one of the causes of loss covered by the policy. The cost of repairing the hail damage was $95,040. The dispute involves whether Le Mars is obligated under its policy to pay this entire amount, less Olson's deductible, or whether it is permitted to deduct a depreciation factor from the repair cost in order to arrive at a net amount due. Le Mars contends that because it insured the building for actual cash value, not replacement cost, the deduction of depreciation is proper.

Whether the policy permits this deduction is a question of law. In an appellate review of an insurance policy, the court construes the policy as any other contract to give effect to the parties' intentions at the time the writing was made. Where the terms of a contract are clear, they are to be accorded their plain and ordinary meaning. Auto-Owners Ins. Co. v. Home Pride Cos., supra; Poulton v. State Farm Fire & Cas. Cos., supra.

Regarding words in an insurance policy, the language should be considered not in accordance with what the insurer intended the words to mean but according to what a reasonable person in the position of the insured would have understood them to mean. Guerrier v. Mid-Century Ins. Co., 266 Neb. 150, 663 N.W.2d 131 (2003); Decker v. Combined Ins. Co. of Am., 244 Neb. 281, 505 N.W.2d 719 (1993).

ACTUAL CASH VALUE

As used in a property insurance policy, the phrase "actual cash value" is a...