Pollock v. Fire Ins. Exchange

• Decision Date: 31 May 1988
• Docket Number: Docket No. 97827
• Citation: 423 N.W.2d 234,167 Mich.App. 415
• Parties: Lynne POLLOCK, Plaintiff-Appellee, v. FIRE INSURANCE EXCHANGE, Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

Page 234

423 N.W.2d 234

167 Mich.App. 415

Lynne POLLOCK, Plaintiff-Appellee, v. FIRE INSURANCE EXCHANGE, Defendant-Appellant.

Docket No. 97827.

Court of Appeals of Michigan.

Submitted Feb. 9, 1988.

Decided March 22, 1988.

Released for Publication May 31, 1988.

Hatchett, Dewalt, Hatchett & Hall by Elbert L. Hatchett, Pontiac, for plaintiff-appellee.

Denenberg, Tuffley, Bocan, Jamieson, Black, Hopkins & Ewald, P.C. by David R. Tuffley and John A. Lawson, Southfield, for defendant-appellant.

Before J.H. GILLIS, P.J., and GRIBBS and SAWYER, JJ.

PER CURIAM.

Defendant appeals from an order of summary disposition, entered pursuant to MCR 2.116(I)(2), in favor of plaintiff on her claim against defendant under a fire insurance policy.

Plaintiff's home was damaged by fire on January 24, 1984, resulting in plaintiff's filing the instant claim of loss with defendant. Defendant denied the claim; plaintiff responded by filing a proof of loss and demand for appraisal. Defendant still did not honor the claim and did not appoint an appraiser, causing plaintiff to file the instant lawsuit in March, 1985. In answer to the complaint, defendant denied breaching the insurance contract and asserted as an affirmative defense that plaintiff had failed to properly document her claim. The remainder of the house was demolished on January 31, 1986, by order of the township, which had delayed the demolition of the house for two years to give the parties an opportunity to resolve the matter and possibly rebuild the house. On February 12, 1986, twenty-five months after the fire and two weeks after the house was demolished, defendant forwarded $30,000 to plaintiff, representing $20,000 for the structure and $10,000 for contents. ¹

On August 19, 1986, the appraiser filed a notice of appraisal which concluded that the replacement cost value of the house was $52,445 and the actual cost value was $44,578.55. Defendant filed a motion to set aside or modify the appraisal award because of errors in the calculation of the award, with the trial court denying that motion.

Defendant thereafter sent a letter to plaintiff's attorney asking that he confirm a remaining balance of $55,145.05 owing to plaintiff, which included replacement costs. Plaintiff's attorney replied that that was incorrect because the total amount owing, including replacement costs, was $63,011.50. Plaintiff offered to forgo any prejudgment interest if defendant paid the replacement cost immediately.

On November 19, 1986, defendant filed a motion to enforce the appraisal award and plaintiff replied with a cross-motion for summary disposition. Following the hearing on the motion, the trial court concluded that plaintiff was due replacement cost value even though she did not repair, replace or rebuild her house in accordance with policy requirements because defendant's delay had made it impossible for plaintiff to comply with the policy provisions. The trial court found it inequitable to penalize the plaintiff when defendant's twenty-five month delay in paying any substantial amount prevented plaintiff from rebuilding her house. The trial court further found that defendant should pay prejudgment interest because plaintiff was forced to file suit to collect on her claim.

On December 22, 1986, an order of summary disposition was entered in accordance with the above rulings and defendant paid plaintiff $55,145.05 in partial satisfaction of the judgment. The remaining $7,866.45 of the judgment represents the difference between replacement cost value and actual cost value of the property.

Defendant first argues that the trial court erred in awarding plaintiff the replacement cost of her damaged property when plaintiff failed to repair, rebuild or replace her home. "Replacement cost" policies are permitted by statute, but the statute requires the repair or replacement of the damaged property. M.C.L. § 500.2826; M.S.A. § 24.12826 provides as follows:

Riders and endorsements may, in consideration of adequate premium or premium deposit, be added to the standard fire insurance policy, insuring property, whereby the insurer agrees to reimburse and indemnify the insured for the difference between the actual value of the insured property at the time any loss or damages occurs, and the amount actually expended to repair, rebuild or replace with new materials of like size, kind and quality, but not to exceed the amount of liability covered by the riders or endorsements, such property as has been damaged or destroyed by fire or other perils insured against, except that there shall be no liability by the insurer under the terms of said riders or endorsements to pay the amount specified in the riders or endorsements unless the property damaged is actually repaired, rebuilt or replaced at the same or another site.

Consistent with the statute, the insurance policy at issue in the case at bar provides in pertinent part as follows:

3. Loss Settlement.

a. Except as stated in Item b, covered loss to buildings under Coverages A and B will be settled at replacement cost without deduction for depreciation.

(1) Settlement under replacement cost will not be more than the smallest of the following:

(a) the limit of insurance under this policy applying to the building.

(b) the replacement cost of that part of the building damaged for equivalent construction and use on the same premises.

(c) the amount necessarily spent to repair or replace the building intended for the same occupancy and use.

(2) When the cost to repair or replace is more than $1,000 or more than 5% of the limit of insurance in this policy on the building, whichever is less, we shall pay no more than the actual cash value of the damage until repair or replacement is completed.

(3) At your option, you may make a claim under this policy on an actual cash value basis for loss or damage to buildings. Within 180 days after loss you may make a claim for any additional amount on a replacement cost basis if the property has been repaired or replaced.

b. Covered loss to the following types of property will be settled at actual cash value. Payments will not exceed the amount necessary to repair or replace the damaged property, or the limit of insurance applying to the property, whichever is less.

(1) personal property and structures that are not buildings.

(2) carpeting, including wall to wall carpeting, domestic appliances, awnings, outdoor equipment and antennas, all whether or not attached to building.

The interpretation of this fire insurance policy provision is an issue of first impression in Michigan. However, the issue has been considered in other jurisdictions. Specifically, the trial court relied upon Zaitchick v. American Motorists Ins. Co., 554 F.Supp. 209 (S.D.N.Y.1982). In Zaitchick, the defendant insurance company refused to pay a fire insurance claim because it suspected the plaintiff of arson and because it claimed that the plaintiff made an exaggerated claim. The trial court found that the defendant had not sustained its burden of proof with regard to the arson charges or the charge of exaggerated claims. Id. at 215. In finding that replacement cost value was the appropriate measure of damages, instead of actual cost value, the court stated:

I find...