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VAN HORNE v. GLEN FALLS INSURANCE COMPANY

May 21, 2004.

S. RICHARD VAN HORNE III and MARY M. VAN HORNE, Plaintiff,
v.
THE GLEN FALLS INSURANCE COMPANY d/b/a ENCOMPASS INSURANCE (formerly known as CNA PERSONAL INSURANCE, Defendant



The opinion of the court was delivered by: MARTIN ASHMAN, Magistrate Judge

MEMORANDUM OPINION AND ORDER

Plaintiff's, S. Richard Van Home III and Mary M. Van Home, filed a two-count complaint against Defendant, Encompass Insurance, alleging that Encompass failed to comply with Wisconsin's valued policy statute by refusing to pay the total policy limit on their homeowner's insurance after their house was damaged and determined to be a total loss. Count II seeks interest on the unpaid amount. Plaintiff's moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. Encompass has also filed a motion for summary judgment on the same issues. The parties have consented to have this Court conduct any and all proceedings in this case, including the entry of final judgment. See 28 U.S.C. § 636(c); Local R. 73.1(a). For the following reasons, Plaintiffs' motion is granted and Defendant's motion is denied. I. Background

  A. The Delvan Property

  Plaintiff's, who primarily reside in Chicago, Illinois, are also the owners of property located at 2580 North Shore Drive, Delvan, Wisconsin (the "Delvan property"). Encompass issued insurance policy number US 152868385 covering the Delvan property, effective from August 14, 2001 through August 14, 2002. Plaintiff's also insure two properties in Illinois with Encompass. In May of 2002, Plaintiff's discovered water damage at the Delvan property which had caused substantial damage to the house and its contents. The water damage was not caused by any fault of Plaintiff's. Investigators agreed that the damage and resulting mold and mildew infestation was so extensive that it would be more cost effective to demolish the house and rebuild than to repair and reconstruct the existing structure. The house was a total loss.

  Encompass paid Plaintiff's $384,000, the amount identified in the policy as the "Estimated Residence Value" for the house. Estimates to replace the house started at over $400,000.*fn1 With respect to personal property, Encompass paid Plaintiff's the actual cash value of $110,627.47 for the contents of the house. It notified Plaintiff's that they could submit documentation of the replacement cost of the contents within a certain amount of time in order to receive an additional amount of money. B. The Insurance Contract

  The insurance policy covering the Delvan property is a "Deluxe-Home" policy. The renewal policy coverage summary identifies a "Property Location Limit" equal to $768,000. (VH000002.)*fn2 The coverage summary provides that "Your Location Limit is 200% of the Estimated Residence Value of $384,000." (Id.) It further provides that "No more than 20% of the Property Location Limit shown above will be available to pay for other structures." (Id.) "Total loss" is defined as when "the cost to replace the covered real property is equal to or less than the cost of repairs plus the cost of any Additional Living Expense, Fair Rental Value, Building Ordinance Increased Costs and Debris Removal," (Emphasis from original removed; VH000008.)

  The limit of liability for real property is set forth as follows:
Covered losses are settled on a replacement cost basis (without deduction for depreciation) subject to the following:
1. Payment will not exceed the smallest of:
a. The amount that we could reasonably be expected to pay to have the property repaired to its condition immediately prior to loss;
b. The actual cost to replace the real property or any parts of it; or
c. The aggregate property limit shown in the Coverage Summary for the residence. 2. If you have:
a. Maintained Coverage on the real property at 100% of its full replacement cost by paying renewal premium to reflect the then current replacement cost. The current replacement cost of the real property will be based on the residential construction cost index provided to us by a major appraisal company; and
b. Notified us within 90 days of the start of any alterations to the real property . . .
Then, if at the time of loss the residence value indicated in the Coverage Summary is less than the current replacement cost, we will: (VH000009)
a. Increase, the residence value to equal the current replacement cost subject to a maximum of 125% of the residence value shown on the Coverage Summary. (VH000034.)
b. Also increase the aggregate property limit by the same percentage applied to the residence value; (VH000009-10)and
c. Adjust the policy premium . . . (VH000010.)
4. If the replacement premises is not at the same location, covered losses will be settled on a replacement cost basis. We will pay no more than the dwelling replacement value shown in the Coverage Summary for equivalent construction and use as the original residence premises. (VH000041.)
  The policy is further amended by the Wisconsin Amendment, which contains a limit of liability as follows:

  Whenever this policy insures real property which is owned and occupied by the covered person as a dwelling and the property is wholly destroyed, without the criminal fault of the covered person or assignee, the amount of loss shall be taken conclusively to be the residence value or dwelling value shown on the Coverage Summary. (VH000034.) The Wisconsin Amendment provides that if any provision of the policy, including endorsements, is in conflict with a Wisconsin statute or rule it will be amended to conform to that statute or rule. (VH000040.)

  II. Discussion

  A. Summary Judgment Standard

  Summary judgment is appropriate only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The only issue in front of the Court is the interpretation of Wisconsin's valued policy statute as applied to the Delvan property policy. There are no factual issues, and summary judgment is appropriate.

  B. The Valued Policy Statute

  The Court has diversity jurisdiction over this matter. The parties agree that Wisconsin law applies. See Wis. Stat. § 632.09 (Wisconsin law governs insurance on property located in Wisconsin). The parties also agree that the loss of the residence on the Delvan property is a total loss and that the loss was not due to any fault of Plaintiff's. The Wisconsin valued policy statute governs insurance coverage in the event of a total loss:
Total loss. Whenever any policy insures real property that is owned and occupied by the insured primarily as a dwelling and the property is wholly destroyed, without criminal fault on the part of the insured or the insured's assigns, the amount of the Joss shall be taken conclusively to be the policy limits of the policy insuring the property.
Wis. Stat. § 632.05(2) (emphasis added to text). The statute was written to further the public policy of preventing the over-insurance of property by owners (and the resulting tempting opportunity for arson) and the over-payment of premiums to insurance companies. Gambrell v. Campbellsport Mut. Ins. Co., 177 N.W.2d 313, 315 (Wis. 1970). The statute also serves to "eliminate controversy as to the amount of loss by requiring the parties to agree upon the amount to be paid in the event of total destruction." Fox v. Milwaukee Mechanics' Ins. Co., 246 N.W. 511, 512 (Wis. 1933). It thus acts as a contract for liquidated damages should the property be totally destroyed. Id.

  Plaintiff's argue that the Property Location Limit of $768,000 in the Coverage Summary equals the "policy limits of the policy" adverted to in the valued policy statute. Alternatively, they argue that if the Property Location Limit is not the statutory policy limit, then the policy is ambiguous and should be construed in their favor compelling a finding that the policy limits equals the Property Location Limit Defendants assert that by the plain language of the statute the "policy limits of the policy insuring the property" refer to the limits of the dwelling only. Furthermore, the valued policy statute applies only to real property. Because the Property Location Limit of $768,000 is an ...


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