Valued Policy Law and Total Loss

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Typically, a fire insurance policy pays a policyholder for the actual cash value or the replacement value of the property destroyed.  But in 20 states, if there is a total loss, the amount the insurer must pay is equal to the value of the property at the time the insurance policy was issued.  What happens if the policy covers a multi-building complex and one of the buildings is destroyed?  The Eighth Circuit Court of Appeals recently addressed this issue.

In Norwood-Redfield Apartments Limited Partnership v. American Family Mutual Ins. Co., No. 18-2618 (8th Cir. May 16, 2019)(Unpublished), the appeals court affirmed a judgment in favor of the insurance company denying the policyholder’s claim to recover the full value listed on the policy of an entire complex of buildings when only one of the buildings was destroyed.  The policyholder sued its insurance carrier after a fire destroyed one of the buildings out of 32 in the complex.  The insurance carrier paid nearly $3 million for the loss, but the policyholder wanted the policy limits of over $31 million.

The case was in Missouri, where fire policies come under the state’s valued property law, Mo. Rev. Stat § 379.410.  The statute provides that in a suit on a fire policy after a total loss of the insured property, the insurer cannot deny that the property was not worth what it was valued at at the time the insurance policy was issued, less depreciation.  Here, the policyholder claimed that it sustained a total loss because one of the buildings was completely destroyed and it didn’t matter how many buildings there were.

In rejecting the policyholder’s argument, the court concluded that the property insured was the 32-building complex and not each building in the complex.  As the court stated, the declarations page described the coverage as blanket insurance at the 32-buildings with each building described as an individual premises.  The policy made it clear that the limit of liability applied to all the premises described in the declarations.  Because the fire only destroyed one of the buildings, the valued property statute did not require the insurer to pay the full policy amount.  The statute provides that in the case of a partial loss, the measure of damage is that portion of the value of the whole property insured, which the destroyed part bears to the whole property insured.  Because there was no total loss, the total policy limit was not implicated.

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