latter part of that provision which requires the payment of a
higher premium on demand which demand if not met justifies
nullification of the policy. No demand for a higher premium
was made on these policies and they were therefore not null
and void and were in effect as to the mortgagee at the time of
To summarize then, we find that the mortgagor's request for
cancellation was not effective as to the mortgagee; that the
mortgagee was not notified of any cancellation as required by
the "Clause"; that the failure of the mortgagee to inform the
insurer of the greater risk is irrelevant since the insurer
had already been informed by the mortgagor and that the policy
was not null and void since no request for a higher premium
had been made.
On the liability issue we therefore find for plaintiff.
The finding, in legal terms, of liability on the part of
defendant insurance companies, though, does not ipso facto
mean that there is a value that can be collected on the
policies in practical terms. What must now be determined is
whether the value of buildings at the time of the loss was the
"actual cash value" as plaintiff would have it or whether
there is no value that can be collected since the buildings
were being wrecked pursuant to a firm contract to demolish the
entire complex with the salvage belonging to the wreckers, as
The plaintiff claims that the "actual cash value" of the
buildings at the time of the loss was $300,000.00; that the
amount due on the mortgage held by it was $249,843.06; that
each of the six companies issued a $50,000.00 policy on the
buildings and that $41,640.51 is due plaintiff from each
company ($41,640.51 x 6 = $249,843.06 — mortgage balance).
The premise that "actual cash value" rather than market
value or relative value will be determinative of the amount of
loss is a valid one in the usual case, given the difficulty
that arises in permitting incidental considerations to be
injected into evaluation.
We do not believe that it ought to be applied in this case.
To award $249,843.06 for a fire loss to buildings that were in
the process of being wrecked with the knowledge of the
plaintiff and pursuant to a firm contract which also gave the
wrecker ownership of the salvage would produce an incongruous
and inequitable result.
Plaintiff cites various cases to the proposition that actual
cash value is the only criteria determinative of the amount of
loss even where there was an expressed intention of wrecking
the insured location.
Plaintiff relies heavily on Knuppel v. American Insurance
Co., 269 F.2d 163 (7th Cir. 1959) in support of its contention
that actual cash value means reproduction value less
depreciation and not market value. In Knuppel the Court held
that the intent of plaintiff to tear down the structure had no
bearing on the actual cash value. Firstly, there was
conflicting testimony in Knuppel as to the intention to wreck
the building, the plaintiff testifying that he was considering
various possibilities and was undecided at the time of the
loss. Secondly, we find a distinct difference between an
expressed interest in wrecking the insured property and the
actual implementation of that decision and the occurrence of
the loss while that wrecking was actually taking place.
In First National Bank in Chicago Heights v. Home Ins. Co.,
also utilized by plaintiff, decided by this Court and affirmed
by the 7th Circuit, 350 F.2d 577 (1965) the insured had
expressed his intention to demolish the insured building but
the case nowhere discusses the actual effect of an express
intention to demolish on actual cash value.
Plaintiff also cites, along with cases that attest to the
the general applicability of the actual cash value criteria of
reproduction value less depreciation, First National Bank of
Highland Park v. Boston
Insurance Co., 17 Ill.App.2d 159, 149 N.E.2d 420 (1st Dist.
1958). In that case the insured had entered into a contract to
sell the property for $19,000.00 of which he had received
$3,000.00 at the time of the fire. The insurance on the
property totaled $46,750.00 and there was evidence showing a
replacement value of over $200,000.00 and judgment was entered
in the latter amount.
Plaintiff in our case therefore analogizes that only
replacement value less depreciation can be considered although
another value has been pinpointed; in First the actual sale
price, in our case a zero value given the demolition in
progress. We believe that First is also distinguishable on the
grounds that there is a vast difference between an executory
sales contract which retains the insured property intact and a
contract to demolish which is in the process of being executed.
Finally there are a number of cases which indicate that the
exceptions to the "actual cash value" rule in demolition
cases, increases in viability in proportion to the proximity
and certainty of the demolition and decreases in acceptance in
proportion to the remoteness and indefiniteness of demolition.
In Board of Education of Hancock County v. Hartford Fire
Ins. Co., et al., 124 W. Va. 163, 19 S.E.2d 448 the school
involved therein was to be replaced when a fire occurred. A
contract was made to remove the old school and build a new
one, the contractor was notified of the day when the school
would be vacated and it was requested that the contractor
proceed with the demolition. The Court approved of the general
actual cash value rule but found the case to be an exception
given the binding contract to demolish.
This reasoning applies, a fortiori in our case where the
actual wrecking was in progress.
In Bailey v. Gulf Insurance Co., 406 F.2d 47 (10th Cir.
1969), the Court held that existence of a city resolution
declaring the building to be a nuisance and ordering the
building to be demolished had no bearing on its value for fire
insurance purposes. There is however a difference between the
effect on cash value of a mere "legal duty" to demolish and
the actual demolition being embarked upon as well as a
difference between being forced into demolition by a city
resolution and the voluntarily embarkation upon demolition.
The Court however did state that:
Indeed, in an analogous situation in which an
owner was also under a legal duty to demolish an
insured structure, this court, applying Oklahoma
law, determined that at least until physical
changes were made in fulfillment of the legal
obligation to destroy the building, the insurer
could not use the owner's legal duty as a shield
against the payment of damages. [See American
Home Fire Assurance Co. of New York v. MidWest
Enterprise Co., 189 F.2d 528 (10th Cir. 1951)]
406 F.2d at 48.
Thus we see that the closer intention comes to reality the
more apt the Court is to consider the valuelessness of the
insured building in view of the demolition and in our case the
physical changes spoken of in Bailey were certainly being made.