Insurance Policy Conditions Must be Applied

Post 4836

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Roof damage insurance disputes are common. April Point South Property Owner’s Association, claims that the insurer, Third Coast Insurance Company, owes over $1.8 million to repair hailstorm damage to 31 separate buildings in a condominium project. Third Coast investigated the claim and denied coverage. April Point disputed the denial. Both parties retained adjusters and experts. After the parties failed to reach resolution, April Point sued.

In April Point South Property Owner’s Association, Inc v. Third Coast Insurance Co., Civil Action No. H-23-2654, United States District Court, S.D. Texas, Houston Division (July 15, 2024) the USDC resolved competing motions for summary judgment.

Contents

ANALYSIS

Third Coast did not pay anything under the policy in the year after the storm damage. April Point has presented evidence that Third Coast’s coverage denial deprived April Point of the funds it needed to make the repairs. Although April Point may recover on a replacement cost value despite the one-year deadline, subject to the limitations discussed below, April Point must make the repairs in order to obtain coverage on a replacement value basis.

The Age of the Roofs

Third Coast also argues that April Point can recover no more than the actual cash value of the repairs because the damaged roofs are over 15 years old. The policy states that “[a]ny damage to existing roof coverings that have been in place . . . for more than fifteen (15) years and one (1) day will be valued at ‘Actual Cash Value[.]’”

April Point asserts that that it can show that at least two roofs were replaced within the 15 years before the date of loss and therefore qualify for replacement cost value. Third Coast responds that while it does not dispute that 4,400 square feet of the damaged roofs are less than 15 years old, April Point has not shown that the other 186,400 square feet of the roofs are under 15 years old. The court agreed.

Coverage for Cosmetic Damage

The policy excludes payment for “cosmetic loss or damage” which it defines as damage “that alters only the physical appearance of any such item . . . but does not result in the failure of the item to perform its intended function for the remain[d]er of its original, useful life.” The parties agree that cosmetic work is not covered. April Point may not seek cosmetic damages to replace dented but functional parts of the property.

Replacement Cost as of the Date of Loss

The policy provision limiting Third Coast’s obligation to pay repair costs to the prices at the date of loss is unambiguous. Third Coast is entitled to summary judgment limiting the damages to the costs of repair as of the date and place of loss.

The Exclusion of General Contractor Overhead and Profit

The Third Coast insurance policy excludes recovery of “General Contract Overhead and Profit” for the “roof system or any component thereof[.]” Since neither party has submitted or pointed to evidence as to whether the “roof system or any component thereof” includes HVAC units or lattice work the court denied summary judgment because, while the policy excludes recovery for the general contractor’s overhead and profit for the “roof system or any component thereof,” the present record does not show what costs or work this policy language excludes.

The Exclusion of Loss from the Diminution of Value

The insurance policy states that Third Coast “will not pay for loss to Covered Property due to any ‘Diminution in Value[.]’” April Point may not recover damages for diminution of market value based on the appearance of the roofs after repair as opposed to replacement.

The Extracontractual Claims

Texas law imposes on insurers a common law duty to deal fairly and in good faith with its insured in the processing and payment of claims. The record shows that Third Coast’s inspector initially reported evidence of hail damage to the property and recommended payment of the claim. After the initial investigation, Third Coast brought in independent engineering and weather consultants who disagreed with the inspector’s determination. April Point has not submitted or pointed to evidence that these consultants made their findings in an unobjective or unfair matter. A bona fide controversy is sufficient reason for failure of an insurer to make a prompt payment of a loss claim. The evidence shows a bona fide controversy between various experts as to whether the damage was covered, precluding liability for bad faith. The extracontractual claims were dismissed.

CONCLUSION

Third Coast’s motion for partial summary judgment was granted to limit recovery to the actual cash value for roofs except the 4,400 square feet that were less than 15 years old and to the costs of repair as of the date of loss, and to exclude coverage for diminution of value and repair of cosmetic damage. The court also granted summary judgment on the extracontractual claims. Third Coast’s motion was denied as to the work covered by the general contractor overhead provision. The court granted summary judgment that the policy excluded coverage for cosmetic damage and diminution of value.

Insurance policies that contain provisions that are clear and unambiguous will always be affirmed and applied by a trial court. This court worked for fairness applying some of the insured’s arguments and applied some of the insurer’s position. Importantly it rejected the bad faith claim because the insurer’s position was fairly debatable.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.

Insurance Policy Conditions Must be Applied