Travelers Indem. Co. v. Armstrong, No. 1282S468

Docket NºNo. 1282S468
Citation442 N.E.2d 349
Case DateDecember 06, 1982
CourtSupreme Court of Indiana

Page 349

442 N.E.2d 349
The TRAVELERS INDEMNITY COMPANY, Appellant (Defendant Below),
v.
Orrie L. ARMSTRONG, Appellee (Plaintiff Below).
No. 1282S468.
Supreme Court of Indiana.
Dec. 6, 1982.

Page 351

Locke, Reynolds, Boyd & Weisell by Hugh E. Reynolds, Michael A. Bergin, Indianapolis, Hoeppner, Wagner & Evans by John E. Hughes, Lowell, Clifford, Houran, Hiller & Sullivan by Winfield Houran, Valparaiso, for appellant.

Knightlinger, Young, Gray & De Trude by Mark W. Gray, Peter G. Tamulonis, Indianapolis, for American Ins. Ass'n, amicus curiae.

John D. Hughes, George Segar, Ice, Miller, Donadio & Ryan, Indianapolis, for Indiana Basic Property Ins. Underwriting Ass'n (Fair Plan), amicus curiae.

George W. Douglas, James H. Douglas, Valparaiso, for appellee; Douglas, Douglas & Douglas, Valparaiso, of counsel.

Gleason & Hay by Charles S. Gleason, Indianapolis, for William Damaskos and Alice Damaskos, Patton Elec. Co., Inc., George Nasser d/b/a Chairs Galore, Individually and in their representative capacity for all other policyholders similarly situated, amicus curiae.

PRENTICE, Justice.

The defendant issued its policy of insurance denominated a "Farmowner's Policy," by the terms of which it insured the plaintiff, as follows:

" * * * does insure the insured named * * * 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 * * * against all direct loss by fire * * *."

The contract (policy) consisted of the basic form known in the industry as "The 1943 New York Standard Form" and also as an "Actual Cash Value Form," which was approved for use in Indiana in 1955. Burns Adm. Rules and Regulations, (27-1-13-1) and three addenda, termed "Endorsements."

The property and interests insured were enumerated in the basic form as "Coverages." Coverage "A" was the defendant's farm residence, and Coverage "F" was another dwelling house, rented to tenants, and located upon the same farm, which encompassed some 190 acres in Lake County. The limit of liability was fixed at $15,000.00 as to the rental house, which was approximately 100 years old but to which extensive renovations had been made about ten years prior to the fire which gave rise to the controversy.

The rental dwelling was substantially damaged by fire October 17, 1972. The plaintiff and Mr. Bognar, an employee of the defendant, met promptly thereafter and surveyed the damaged premises with a repair contractor, who estimated the cost of

Page 352

restoration to be $8,729.62. A dispute arose between the parties at this point, the details of which are immaterial to a resolution of the issue of compensatory damages but will be hereinafter related in that portion of this opinion devoted to the issue of punitive damages.

Upon receiving the aforementioned repair estimate, Defendant offered the sum of $6,497.22 after allowing for the enhancement, over the original value, that would result from the restoration of the dwelling. This factor is termed "depreciation" and was assessed at twenty-five percent. The issue was entirely one of law, i.e., whether the phrase "actual cash value," as used in the contract of insurance, obligated the defendant to pay the full cost of restoration or merely the amount of diminution in value occasioned by the fire.

The case was tried to a jury which returned a verdict upon the contract in the sum of $8,729.62 and punitive damages in the sum of $25,000.00, and judgment was rendered thereon.

The Court of Appeals, Third District, affirmed the judgment of the trial court by decision and opinion published at 384 N.E.2d 607, but in so doing contravened a ruling precedent of this Court, i.e., Vernon Fire & Casualty Insurance Co. v. Sharp, (1976) 264 Ind. 599, 349 N.E.2d 173, wherein this Court held that punitive damages may be assessed where the conduct of a party breaching a contract not only amounts to a breach but also is intentional and oppressive and not privileged, as relating to his duties under the contract, and further held that an insurer could not be subjected to punitive damages for seeking to pay only the amount which it believes, in good faith, to be lawful.

Said decision and opinion of the Court of Appeals also erroneously decided a new question of law in this state 1 in that it construed the phrase "actual cash value," as used in the 1943 Standard Form New York policy of casualty insurance, approved for use in this state by the Indiana Insurance Commission, to mean "an amount of money, within the policy limit, sufficient to restore, repair, or replace the property destroyed."

Transfer is granted, and the aforementioned decision and opinion of the Court of Appeals, Third District is ordered vacated.

COMPENSATORY DAMAGES

(Broad Evidence Rule Adopted)

The insurance industry provides two distinct types of casualty protection for dwellings. One insures to the extent of the "actual cash value," i.e., the diminution in value; and the other insures to the extent of "the full cost of repair or replacement without deduction for depreciation," i.e., without regard to whether or not the restoration results in an enhanced value to the premises. This is an overly simplified explanation but adequate for purposes of resolving this case. Under some circumstances the amount payable following a loss may be the same under either insuring provision, but the risk assumed by the insurer and consequently the premiums charged are quite different.

ACTUAL CASH VALUE AND REPLACEMENT COST DISTINGUISHED

The difference between "actual cash value" coverage and coverage for "the full cost of repair or replacement without deduction for depreciation" is not only a linguistic one but also each provides a different practical result.

The actual cash value policy is a pure indemnity contract. Its purpose is to make the insured whole but never to benefit him because a fire occurred. Appleman on Insurance 2d Sec. 3823 at pp. 218-219; Brand Distributors Inc. v. Insurance Co. of North America, (1976) 532 F.2d 352 (4th Cir.). Replacement cost coverage, on the other hand, reimburses the insured for the full cost of repairs, if he repairs or rebuilds the building, even if that results in putting the insured in a better position than he was before the loss.

If a fire occurs in a new building, the actual cash value generally is equivalent

Page 353

to the cost of repairs since the full cost of repair merely restores what was there. It indemnifies but does no more. If an old building burns to the ground, the actual value is commonly established by reference to its fair market value less the value of the land on which the building sits. If an old building has only very minor fire damage, repairs probably do not result in a substantial betterment, and depreciation is usually ignored in adjusting the loss. However when the building is old or obsolescent and is seriously damaged but not destroyed, the actual cash value is more likely to be disputed. The courts uniformly hold, as did the Court of Appeals, that actual cash value insurance is strictly a contract of indemnity. The insured should be made whole but not be put in a better position than he was in before the fire. Braddock v. Memphis Fire Ins. Corp., (1973) Tenn., 493 S.W.2d 453.

"A problem common to all the foregoing tests is the extent to which physical deterioration and obsolescence should be taken into account in computing loss. If the principal of indemnity be adhered to, depreciation must be considered in loss adjustment so that the insured will not receive the equivalent of a new building for a loss of the old one. Insurance law is not concerned with the estimated depreciation charged off on the books of business establishment but rather with the actual deterioration of a structure by reason of age and physical wear and tear, computed at the time of the loss." 49 Colum.L.R., 818, 823. The same principle is discussed at 44 Am.Jur.2d 549, Appleman on Insurance 2d, Sec. 2823 at p. 226.

A building constructed thirty years ago will have many interior features and structural components that are not only old and used, but of a style, material and color no longer available or in fashion. If damaged by a fire, they will be replaceable only with new components and the fire will be the occasion of renovation and remodeling which, if done without reference to a fire, would be an improvement paid for by the owner. 44 Am.Jur.2d p. 549. In such event, the property is worth more and the fire loss provided the insured with an enhancement for the value of his assets.

Replacement cost insurance on the other hand is not a pure indemnity agreement. It is an optional coverage that may be purchased and added to a basic fire policy by endorsement. It is more expensive because the rate of premiums is higher and the amount of insurance to which that rate applies is usually higher.

Replacement cost coverage is available on the insurance market to meet the need which troubled the plaintiff. That need may be expressed this way:

Since fire is an unwanted and unplanned for occurrence, why can't the owner of an older home buy insurance to cover the full cost of repair even if those repairs make it a better or more valuable building? Since at the time of fire the homeowner may be least able to pay for improvements, why can't that hazard be insured too? Instead of apportioning the cost of repair after a fire between the actual cash value, to be paid by the insurer, and the betterment to be paid by the insured, why can't the policyholder simply pay a higher premium each year but not have to pay anything more to have his home fully repaired in the event of fire?

When the insurance industry adopted a standard extension of coverage endorsement to provide replacement cost, it took into account the one great hazard in providing this kind of coverage: the possibility for the insured to...

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  • Esparza v. Burlington Ins. Co., CASE NO. CV F 10-1079 LJO JLT
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
    • August 5, 2011
    ...noniniquitous human failing." Tomaselli, 25 Cal.App.4th at 1288, n. 14, 31 Cal.Rptr.2d 433 (quoting Travelers Indem. Co. v. Armstrong, 442 N.E.2d 349, 362 (Ind. 1982)). An insurer's unreasonable actions do not equate to malice. See Patrick v. Maryland Cas. Co., 217 Cal.App.3d 1566, 1575, 26......
  • De Puy Inc. v. Biomedical Engineering Trust, No. CIV.A. 97-CV-3450 (AJL).
    • United States
    • United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
    • April 18, 2001
    ...N.E.2d 572, 580 (Ind.Ct.App. 1983)). To be "ascertainable," the damages need not be liquidated. The Travelers Indemnity Co. v. Armstrong, 442 N.E.2d 349, 365 (1982); Eden United, Inc. v. Short, 653 N.E.2d 126, 133 (Ind.Ct.App. 1995). It is enough if the damages result from a "simple mathema......
  • United Nuclear Corp. v. Allendale Mut. Ins. Co., Nos. 15094
    • United States
    • New Mexico Supreme Court of New Mexico
    • October 15, 1985
    ...and other jurisdictions in adopting a requirement of "clear and convincing" evidence. See e.g., Travelers Indem. Co. v. Armstrong, 442 N.E.2d 349 (Ind.1982); Wangen v. Ford Motor Co., 97 Wis.2d 260, 294 N.W.2d 437 (1980). In support of this higher evidentiary test, Allendale emphasizes that......
  • Stuart v. Stuart, No. 18324.
    • United States
    • Supreme Court of Connecticut
    • June 22, 2010
    ...370. 12. See, e.g., Linthicum v. Nationwide Life Ins. Co., 150 Ariz. 326, 332, 723 P.2d 675 (1986); Travelers Indemnity Co. v. Armstrong, 442 N.E.2d 349, 363-65 (Ind.1982); Tuttle v. Raymond, 494 A.2d 1353, 1363 (Me.1985); Wangen v. Ford Motor Co., 97 Wis.2d 260, 300, 294 N.W.2d 437 (1980).......
  • Request a trial to view additional results
209 cases
  • Esparza v. Burlington Ins. Co., CASE NO. CV F 10-1079 LJO JLT
    • United States
    • United States District Courts. 9th Circuit. United States District Courts. 9th Circuit. Eastern District of California
    • August 5, 2011
    ...noniniquitous human failing." Tomaselli, 25 Cal.App.4th at 1288, n. 14, 31 Cal.Rptr.2d 433 (quoting Travelers Indem. Co. v. Armstrong, 442 N.E.2d 349, 362 (Ind. 1982)). An insurer's unreasonable actions do not equate to malice. See Patrick v. Maryland Cas. Co., 217 Cal.App.3d 1566, 1575, 26......
  • De Puy Inc. v. Biomedical Engineering Trust, No. CIV.A. 97-CV-3450 (AJL).
    • United States
    • United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
    • April 18, 2001
    ...N.E.2d 572, 580 (Ind.Ct.App. 1983)). To be "ascertainable," the damages need not be liquidated. The Travelers Indemnity Co. v. Armstrong, 442 N.E.2d 349, 365 (1982); Eden United, Inc. v. Short, 653 N.E.2d 126, 133 (Ind.Ct.App. 1995). It is enough if the damages result from a "simple mathema......
  • United Nuclear Corp. v. Allendale Mut. Ins. Co., Nos. 15094
    • United States
    • New Mexico Supreme Court of New Mexico
    • October 15, 1985
    ...and other jurisdictions in adopting a requirement of "clear and convincing" evidence. See e.g., Travelers Indem. Co. v. Armstrong, 442 N.E.2d 349 (Ind.1982); Wangen v. Ford Motor Co., 97 Wis.2d 260, 294 N.W.2d 437 (1980). In support of this higher evidentiary test, Allendale emphasizes that......
  • Stuart v. Stuart, No. 18324.
    • United States
    • Supreme Court of Connecticut
    • June 22, 2010
    ...370. 12. See, e.g., Linthicum v. Nationwide Life Ins. Co., 150 Ariz. 326, 332, 723 P.2d 675 (1986); Travelers Indemnity Co. v. Armstrong, 442 N.E.2d 349, 363-65 (Ind.1982); Tuttle v. Raymond, 494 A.2d 1353, 1363 (Me.1985); Wangen v. Ford Motor Co., 97 Wis.2d 260, 300, 294 N.W.2d 437 (1980).......
  • Request a trial to view additional results

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