Travelers Indem. Co. v. Armstrong
| Decision Date | 08 January 1979 |
| Docket Number | No. 3-1075A228,3-1075A228 |
| Citation | 384 N.E.2d 607 |
| Parties | TRAVELERS INDEMNITY CO., Defendant-Appellant, v. Orrie L. ARMSTRONG, Plaintiff-Appellee. |
| Court | Indiana Appellate Court |
Winfield L. Houran and John E. Hughes, Clifford, Hoeppner, Houran, Wagner & Evans, Valparaiso, for defendant-appellant.
George W. Douglas and James H. Douglas, Douglas, Douglas & Douglas, Valparaiso, for plaintiff-appellee.
Orrie L. Armstrong (plaintiff-appellee; Insured) owned a farmhouse which suffered severe interior fire damage on October 10, 1972. A policy of insurance issued by the Travelers Indemnity Company (defendant-appellant; Travelers) provided coverage for the house to a limit of $15,000. A Travelers' claims adjuster surveyed the damaged premises and estimated the cost of repairs necessitated by the fire. When Travelers offered to pay to the Insured an amount of money substantially less than the estimated cost of repairs, she refused the offer and brought this action alleging breach of contract and deceitful, fraudulent and oppressive conduct.
The jury returned a verdict for the plaintiff which included compensatory damages in the amount of $8,729.62 and punitive damages of $25,000. As stipulated by the parties, the trial court computed interest at the rate of 8% per annum on the amount of the compensatory damage award. The court then entered judgment on the verdict. Travelers appeals that judgment.
The facts most favorable to the judgment and the reasonable inferences logically flowing therefrom disclose that Orrie L. Armstrong was the owner of an old farmhouse located one mile west of Hebron, Indiana. Mrs. Armstrong and her husband, John, who died in March of 1971, lived in the house for twenty years and raised a family there. While living in the house the Armstrongs made various improvements to the home including the installation of a new furnace, kitchen cabinets and aluminum siding. The Armstrongs moved into a new home after John Armstrong retired, but they retained ownership of the farmhouse, which was rented to a family with six children.
Orrie Armstrong continued to modernize the farmhouse after her husband's death. These improvements included: the addition of two closets; the installation of hardwood paneling and ceiling tile to the living room, dining room, and four, second-floor bedrooms; and new floor tile in the dining room. Orrie Armstrong testified that the house was in very good condition.
In July 1971, Orrie Armstrong renewed for three years a farmowners insurance policy issued by the Travelers Indemnity Company, through the John R. Eppl Insurance Agency of Hammond, Indiana. Prior to the renewal date Eppl advised the insured to increase the amount of coverage applicable to the farmhouse because the cost of building materials had escalated. The coverage was raised accordingly to a limit of $15,000.
On the afternoon of October 10, 1972, fire caused extensive interior damage to the farmhouse. Within a day the Insured notified her agent of the loss. On October 16, 1972, Wayne Bognar, a claims investigator for Travelers, and Mike Corgich of General Repair Contractors inspected the damaged premises in order to estimate the cost of repair and restoration occasioned by the fire. Bognar and Corgich surveyed each room noting all items which required replacement, repair, painting or cleaning.
Within a week Bognar telephoned the Insured and told her that the estimated cost of repair was $8,729.62. Bognar offered to pay approximately $4,200 cash to the Insured if she chose not to repair, or $6,400 to a contractor if the Insured were to repair the house. Orrie Armstrong asked Bognar to explain the offer, and he responded that he did not understand it himself except that there "was something . . . in the policy that was percentage-wise" and the property was not sufficiently insured to take care of it (cost of repair).
The Insured refused the offers and commented to Bognar, in effect, that she was getting less than a fair deal. The Insured then retained an attorney.
The Insured testified that Wayne Bognar dealt with her courteously, although she disagreed with the settlement offered by him.
Robert S. McGinley had 39 years of banking experience in Hebron, Indiana. For a period of 20 years prior to the fire, McGinley had appraised property in the Hebron area on the average of two or three times a week. McGinley and another appraiser made an inspection of the farmhouse following the fire. The purpose of the inspection was to determine the value of the damaged house and to estimate the cost of restoring the house to a livable condition. McGinley noted that the house was seriously damaged and all the rooms required extensive repair as a result of the fire damage. Based on his past experience McGinley roughly estimated the cost of repair to be $8,500. The estimated value of the house exclusive of the land before the fire was $15,000. The estimated value of the house after the fire was $6,500. McGinley expressed the opinion that fire damage decreased the value of the house by the amount of money necessary to repair the damage.
Wayne Bognar testified that he and a contractor thoroughly inspected the damaged premises. Based on that inspection the estimated cost of repair necessitated by the fire was $8,729.62. This estimate was admitted to be fair and reasonable and was the sum of the following components:
Material $1,688.45
Labor 5,465.61
Profit, Overhead, Taxes 1,575.56
Bognar stated that he mistakenly adjusted this claim under an inapplicable policy provision which caused him to offer a settlement choice to the Insured. It was Bognar's opinion that the policy authorized a payment to the Insured of no more than $4,288.58, because the condition of the house warranted a 50% across-the-board depreciation reduction.
A supervisor for Travelers, Kevin Weinberg, contacted the Insured's attorney by letter on June 1, 1973. Enclosed with the letter was a draft in the amount of $6,497.22 for repairs to the Insured's dwelling. The letter explained that this figure was determined by reducing the original repair estimate by a 25% across-the-board depreciation factor so as to avoid betterment of the one-hundred-year-old house. Weinberg opined that a depreciation reduction of only 25% produced a very just and fair offer to the Insured. The offer was refused, and the draft was returned.
The initial disclosure of the attempted depreciation reduction was made by Travelers in the June 1, 1973, letter, more than seven months after the fire.
ISSUES: 1
The judgment of the trial court is comprised of three parts: compensatory damages, interest thereon and punitive damages. The appellant alleges that the judgment is, in all parts, contrary to the evidence and contrary to law. Appellant also claims error in the admission of certain testimony and in the trial court's giving and failing to give certain tendered instructions.
The loss payable clause in the contract at bar states:
". . . (T)his Company . . . to an amount not exceeding the amount(s) above specified, does insure the Insured . . . to the extent of the actual cash value of the property at the time of the 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 . . . ."
It is undisputed by the parties that the contract did not contain a coinsurance clause or a pro rata clause.
The Travelers Indemnity Company accurately claims that its liability under the policy is limited to the actual cash value of the direct loss by fire suffered by the insured plaintiff. Nevertheless, the phrase "actual cash value" is nowhere defined in this policy of insurance, and the parties to the contract have disputed its meaning.
Travelers argues that actual cash value, as used in this policy, means replacement cost minus depreciation. The Insured contends that actual cash value is an expression in monetary terms of the full direct loss by fire as contemplated by the concept of indemnity and the insurance contract. The Insured further contends that a deduction for depreciation is not factually supported in this case, and to hold otherwise would produce a result far short of indemnity.
An insurance contract is prepared and drafted solely by the insurance company subject to no real bargaining and, thus, is a contract of adhesion. Freeman v. Commonwealth (1971), 149 Ind.App. 211, 271 N.E.2d 177 (transfer denied) 259 Ind. 237, 286 N.E.2d 396. Therefore, when a court is required to interpret an insurance contract, the ambiguities will be construed against the insurer and in favor of the insured. Id. An insurance contract is ambiguous if reasonably intelligent men, upon reading the contract, would honestly differ as to its meaning. O'Meara v. American States Ins. Co. (1971), 148 Ind.App. 563, 268 N.E.2d 109. The insurance contract at bar is ambiguous. 2
A fire insurance policy is a contract of indemnity whereby the insurer, in exchange for a money consideration (premium), undertakes to make the insured whole for the loss of insured property caused by fire. First National Bank v. Boston Insurance Co. (1958), 17 Ill.App.2d 159, 149 N.E.2d 420; Butler v. Aetna Ins. Co. (1934), 64 N.D. 764, 256 N.W. 214. It has also been stated that the "contract of the insurer is not that, if the property is burned, he will pay its market value; but that he will indemnify the assured, that is, save him harmless, or put him in as good a condition, so far as practicable, as he would have been in if no fire had occurred." Washington Mills Manuf. Co. v. Weymouth Ins. Co. (1883), 135 Mass. 503, 506-507.
Since it is well settled that the concept of indemnity underlies every fire insurance contract, it is clear the indemnity pervasively affects the interpretation and operation of loss...
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