One of the most commented upon topics presented by this Blog has been the question of co-insurance, or insurance to value, and where liability lies when there in an improper valuation. Although not specifically dealing with co-insurance, I commend to your reading the case of English Mountain Retreat, LLC. et. al. v. Suzanne Crustenberry-Greg, et. al., a case decided by the Eastern Section Court of Appeals on September 21, 2010. In this case, a building owner had contacted an agent and inquired about insurance. The agent made a couple of visits to the property and, during one visit, presented a proposal with her recommendations as to different coverage limits for the various buildings involved. With respect to one of the buildings, which was subsequently destroyed by fire, the agent used what she described as the “accepted practice" of multiplying the square footage of the building by the cost to replace one square foot to obtain the replacement cost. The agent testified that she typically requires the customer to provide the square footage of the property, but in this case could not recall how the square footage figure was determined. As it turns out, her proposal included an estimate of the square footage of the property that was only off by approximately 4000 square feet, resulting in the building being underinsured.
The Trial Court dismissed the case upon directed verdict by finding, in part, that the building owner’s reliance upon the insurance agent’s recommendation was not justified because the owner should have had independent knowledge of the value of the building. The trial court also found that there was an absence of proof of financial loss. The Court of Appeals reversed and remanded for a full trial.
Click here for a full PDF version of the opinion (PDF).