Homeowner Survives Motion to Dismiss Depreciation Claims

    The insurer's motion to dismiss claims for improper claims handling when considering implementation of depreciation was denied. Morrison v. Indian Harbor Ins. Co, et al., 2024 U.S. Dist. LEXIS 115664 (S. D. W. Va. July 1, 2024).

    Plaintiff's home suffered flood damage. The house was insured by Indian Harbor a surplus lines carrier that offered specialized and high risk property policies in West Virginia. Surplus lines policies were procured in West Virginia through a "surplus lines licensee." Here, Neptune Flood Inc. was the surplus lines licensee broker for Indian Harbor. Peninsula Insurance Bureau, Inc. was an administrator and loss adjuster involved in the claim.

    After the flood, Plaintiff notified defendants of the damage and immediately cleaned and repaired the house. Plaintiff asserted that Neptune was given notice of the loss and one of its agents made recommendations regarding the coverage available and conveyed the information to Peninsula and Indian Harbour. Plaintiff claimed that defendants misrepresented his policy coverage and made incorrect adjustments for depreciation based on Neptune's statements and recommendations.  

    Peninsula wrote to Plaintiff, measuring the replacement cost basis of the damage at $37,469.18 and depreciation in the amount of $4,548.12, resulting in an actual cash value of $32,921.06. The policy's deductible of $5,000 was applied, making the net payout as $27,921.06. The letter further advised that following repairs, the depreciation amount could be recovered for a maximum recovery of $37,469.18. Attached to the letter was a "Sworn Statement in Proof of Loss" providing that plaintiff had 180 days from the date of loss to make a supplemental claim to recovery the $4,548.12 depreciation amount. Plaintiff sent back to Peninsula an executed copy of the Proof of Loss. Indian Harbor then paid plaintiff $27,921.06.

    Plaintiff filed suit. His amended complaint alleged there should not have been a deduction for depreciation because his policy had replacement cost coverage and Indian Harbor was required to pay hm the full amount. Plaintiff asserted that defendants not only misrepresented his coverage, but they also failed to assist him in completing his claim. The three defendants all moved to dismiss the complaint.  

    The court found that the policy permitted Indian Harbor to pay actual cash value until repairs or replacement was completed. The policy further provided that an insured who is paid actual cash value had 180 days after the date of loss to present a claim to recover the depreciated amount.

    Here, plaintiff was paid actual cash value. He was also informed he could make a claim for the applied depreciation after he completed repairs. Indian Harbor and Peninsula asserted plaintiff never did so. They argued that the amended complaint did not allege that he made a claim to recover depreciation or that his repair costs exceeded the amount he received. Therefore, Indian Harbor an Peninsula submitted plaintiff's breach of contract claim had to be dismissed for failure to state a claim.

    Plaintiff claimed his repairs were completed before he received Peninsula's letter. Because repairs were already completed, plaintiff insisted that Indian Harbor was required to pay him replacement cost value from the outset. The amended complaint alleged that defendants misled him as to the terms of the policy.

    The court found that plaintiff had raised factual issues sufficient to defeat a motion to dismiss. At this point, the court was unable to determine what plaintiff told defendants about his damages, whether he submitted any evidence of the cost of repair, or what misleading information he believes he was given. These factual issues were reserved for discovery. Therefore, the court denied Indian Harbor and Peninsula's motion to dismiss the breach of contract claim. The court also denied the motion to dismiss plaintiff's bad faith and unfair trade practices act claims asserted against Indian Harbor and Peninsula. Also dismissed was Neptune's motion to dismiss plaintiff's unfair trade practices act claims.