The United States Court of Appeals for the Eighth Circuit affirmed a district court’s ruling that Farm Bureau Property & Casualty Insurance Co. must pay the policy limit in full on the claim for the second of two fires that destroyed a Minnesota couple’s home.
The court’s ruling addresses what constitutes a “total loss” to a structure.
Two fires occurred at Craig and Katie Shaw’s home two months apart, the first burning a large hole in an exterior wall and the second destroying the house entirely. Both fires occurred in the same policy period.
Farm Bureau paid damages of $159,802.52 after the first fire. Before any significant repairs had been made, the second fire destroyed the house. Farm Bureau paid the couple $108,991.48 for the second claim, the difference between the policy limit of $268,000 and what the insurer paid for the first fire.
The Shaws then sued Farm Bureau for breach of contract, arguing that they were entitled to the total loss payment of the full policy limit for the second fire by the policy’s terms. A district court granted the Shaws’ motion for summary judgment. Farm Bureau appealed.
Both parties agree that Farm Bureau’s policy requires the insurer to pay an amount equal to the policy limit if covered occurrences cause a total loss but disagree over what happens when two covered occurrences successively contribute to a building’s total destruction.
Farm Bureau argues that because the Shaws’ house was missing exterior wall as a result of the first fire, the house is a “partial house,” not a “whole house,” and so its destruction cannot be a total loss. The Shaws disagree. In their interpretation, an occurrence that causes a total loss requires the policy to be paid in full, independent of the structure’s original condition.
In ruling in favor of the Shaws, the court considered the grammar of Farm Bureau’s Total Loss Valuation provision and proclaimed that “the word “total” modifies the word “loss” rather than the insured object.”
“The provision does not say “in the event of the loss of the total (or whole) dwelling.” Instead, it reads: “in the event of a total loss.” It is thus the loss—the deprivation—that must be total,” the court wrote.
The court compared its conclusion to that of a car collision. It would not be “inaccurate to say that a collision “totaled” one’s car even if the car had already been missing a door at the time of the crash,” the judges wrote.
The court said the Shaws are also supported by the policy’s period provision, which anticipates that separate claims for separate occurrences will be assessed separately. Farm Bureau’s policy did not state that successive losses deplete the general policy limit on the house, neither did the policy include a provision establishing a general duty to repair.
In its ruling, the court concluded that the definition of total loss to a building is results-based, regardless of whether the building was whole immediately before the loss or whether the building’s condition at the beginning of the policy period.
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