Failure to satisfy deductible leads to no coverage for hail damaged property
The policy stated that damage to property would be covered if the total cost of the destruction exceeded the deductible.
The judge of the Tenth Circuit Court of Appeals has affirmed a district court holding that an insurer did not breach a policy where the insured could not show that its property damages exceeded the policy deductible. The case is Frontline Fellowship Inc. v. Brotherhood Mut. Ins. Co., 2023 U.S. App. LEXIS 24239 (10th Cir. 2023). Please note that this opinion is unpublished and has limited precedential value.
What happened
Frontline Fellowship purchased a commercial property policy from Brotherhood Mutual for coverage of a property in central Oklahoma. The policy permitted cash recovery via replacement cost value (RCV) or actual cash value (ACV).
The RCV provision stated Brotherhood would not pay until repair and replacement of damaged property had been completed. The ACV clause stated that, in the absence of repair and replacement, Brotherhood would pay for the actual cash value of the damaged property at the time of loss. No matter which valuation method was used, the policy stated Brotherhood’s obligation to pay damages would only be triggered if the amount of damages exceeded the policy deductible.
Frontline filed a claim after its property was damaged in a hailstorm. Brotherhood denied the claim because the damages to the property did not exceed the policy deductible. Frontline sued Brotherhood for breach, claiming the insurer had improperly denied its claim. The judges of the district court stated Frontline had to show that either the cost of completed repairs and replacement exceeded the policy deductible, or that the actual cash value of the property exceeded the deductible at the time of the loss.
As it was undisputed that Frontline did not complete repair and replacement of the property, RCV was unavailable. Brotherhood claimed that all of Frontline’s evidence had been in support of RCV and had included no evidence of valuation based on ACV.
According to the opinion, Frontline neither disputed this claim nor offered specific facts sufficient to create a genuine issue of material fact concerning the ACV of the property. The district court granted Brotherhood’s motion for summary judgment. Frontline appealed.
What the appellate court said
Before the Tenth Circuit, Frontline argued that the “broad evidence rule” required taking into account all relevant factors, such as the age and condition of the damaged property and its market value, when calculating ACV.
However, Frontline had not raised the issue of the broad evidence rule in the lower court. Neither had Frontline pointed to any other evidence that would create a genuine dispute over whether the ACV of Frontline’s property exceeded the policy deductible. The judges ruled that Frontline had forfeited this argument.
Frontline also argued that it was within ordinary procedure for an insurer to pay “[an] undisputed amount … that permits the insured to begin repairs.” Brotherhood, it contended, had breached the policy when it failed to pay that undisputed amount. This argument, according to the court, completely ignored the policy language that explicitly required completion of repairs and replacement in excess of the deductible in order to trigger Brotherhood’s obligation to pay.
Since Frontline could not prove that the property damages suffered exceeded the deductible under either RCV or ACV, the judgment in favor of Brotherhood was affirmed.
FC&S editor’s note: In any insurance policy, the deductible is the portion of a loss that is the insured’s responsibility to cover. Though the calculation and application of the deductible will vary by policy, they are united by the principle that an insured must fulfill its own responsibility before the insurer will fulfill theirs. In this case, Frontline had to show the amount of damage caused by the hailstorm exceeded the policy deductible in order to trigger Brotherhood’s obligation to pay for the damages. Since Frontline failed to show damages exceeding the deductible, Brotherhood’s obligation to pay was never triggered.
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