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).
While I acknowledge Clift v. Fulton Fire Insurance Company, 315 S.W.2d 9 (Tenn. Ct. App. 1958), cert. denied, provides a rule for allowing valuation of property under a somewhat “elastic” standard of “value to the owner,” this ambiguous standard should not apply where the valuation provisions of property coverage are specifically set forth in the policy. For instance, most policy provisions now provide that valuation will be based upon an “actual cash value” basis until such time as repair or replacement has occurred. Once repair or replacement has occurred, the insured may be entitled to additional amounts up to the cost of replacement (where replacement coverage is afforded).
Older cases like Clift do not rely upon policies containing the definition of “actual cash value,” a term defined by many modern policies. That definition, widely found in policies today, is similar to the following:
“Actual Cash Value” means replacement cost less a deduction that reflects depreciation, age, condition and obsolescence.
Where similar valuation provisions exist, and particularly where component terms are defined by the policy, I think it would be error for a court to step outside of the definition and apply any other valuation measure, whether it be “value to the owner” or some other measure of damage. Our law has long held that courts are not at liberty to rewrite an insurance policy, even where the court does not favor its terms. Merrimack Mut. Fire Ins. Co. v. Batts, 59 S.W.3d 142, 148 (Tenn. Ct. App. 2001), perm. app. denied.
A common question around my office is, “How do I know what values to claim for my personal goods?” Fortunately, a 1958 Tennessee Court of Appeals opinion provides the answer, but it is not one that is widely disseminated by adjusters to policyholders. In Tennessee, household goods, furniture, clothing and other articles acquired for personal use in the home are valued by the “value to the owner” standard, not by their market value.
In Clift v. Fulton Fire Ins. Co., 315 S.W.2d 9 (Tenn. Ct. App. 1958), the court held:
The phrase ‘the actual cash value’ . . . may mean ‘market value’, or the more elastic standard of ‘value to the owner’.
. . .
‘This doctrine [of ‘value to the owner’] is most frequently and conveniently resorted to in cases of, or damage to, articles which the plaintiff has acquired for personal or domestic use and not for business purposes, such as household goods, clothing, pictures, books, and the like. While usually these things have some slight value for sale at secondhand, this market value would be a very inadequate compensation to the plaintiff who acquired them for use, not for sale. The fact that the property was of this character, that is, used clothing or household goods intended for the owner’s use, is a sufficient showing that market value as secondhand goods is an inappropriate standard, and casual holdings that proof must be made that there is no market value can hardly be supported. (citation omitted)
. . .
In ascertaining the value of goods under this more elastic standard of ‘value to the owner’, evidence of the original cost, of the cost of replacement, the condition of the goods, the use to which they were being put, and all other relevant facts, are to be taken into consideration.
. . .
The goods covered by this policy were household goods, furniture, wearing apparel, and numerous other articles which had been acquired by plaintiffs for personal use of themselves and their children in their home; and the value of such goods is to be estimated not by the market value, not by what they could be sold for in the market as secondhand goods, but by the more elastic standard of ‘value to the owner'.
Clift, 315 S.W.2d at 11-12. This standard is certainly fair to the policyholder. However, actually applying the standard in the real world when reviewing personal property inventory forms is a difficult task indeed. The standard is particularly helpful when defending an insurer’s claim of fraud through alleged overvaluation.