Homeowner who failed to review policy was 'contributorily negligent'
After a storm damaged his lakeside deck and boat dock, the insured believed he was entitled to a higher claim payment than he received.
Alabama’s Supreme Court ruled in favor of an insurer that was sued for bad faith, breach of contract and negligence on the basis that the insured failed to examine his policy coverages. The case is Crook v. Allstate Indem. Co., 314 So. 3d 1188 (Ala. 2020).
What happened
Kevin Crook used the services of an agent from The Barker Agency (Barker) to procure a homeowners policy from Allstate Indemnity Company (Allstate) for his lakefront property. The original policy was purchased in 2006 and renewed annually through 2015. At each renewal, Crook was explicitly instructed to read the renewal policy and make an independent determination of whether the policy limits listed were still sufficient for his coverage needs. Crook, however, never read the renewal policies and placed absolute trust in Allstate to determine sufficient limits.
Shortly before the loss in question, Barker informed Crook that an underwriting inspection of his property had revealed nothing that required a change in coverage. This notice also warned Crook that the inspection had had a limited scope that may not have revealed every potential hazard.
A spring storm caused damage to the lakeside deck and boat dock on Crook’s property. The deck was connected to the dwelling by an outdoor staircase, and the dock was attached to the opposite side of the deck. After Crook notified Allstate of the damages, an inspector for Allstate determined that Crook was owed a payment under Coverage B for Other Structures. Crook received a check for the $11,455 Coverage B limit, which was insufficient to cover the full amount of the damages.
Trial litigation
Crook, who believed the damages were payable under the $56,049 Coverage A Dwelling Protection limit, sued both Barker and Allstate for breach, bad faith, and negligent procurement. First, he argued that Allstate had, in bad faith, breached the policy when it paid Crook the Coverage B limit when the damages were owed under Coverage A. Second, he claimed that the defendants had knowingly and negligently procured a policy with insufficient limits to cover property damages under Coverage B.
Crook, Barker, and Allstate each moved for summary judgment. After consideration, the trial court granted summary judgment to Barker and Allstate on each of Crook’s allegations. Crook appealed, arguing the judges of the trial court were wrong to rule in favor of Barker and Allstate. The justices of the Supreme Court of Alabama considered each of Crook’s claims in turn.
Breach of contract and bad faith
The Allstate policy said Coverage A was for the dwelling on Crook’s property and any attached structures. Crook argued that, since the lakeside deck was connected to the house by the staircase, and the deck was connected to the boat dock, both the deck and the dock were within the scope of Coverage A, rather than Coverage B.
No one doubted the deck and boat dock were structures, but Barker and Allstate argued they weren’t “connected” to the dwelling as strongly as Crook maintained. The description of Coverage A in the policy specifically stated that “structures connected to your dwelling by only a fence, utility line, or similar connection are not considered attached structures.” (emphasis added). Under Coverage B, on the other hand, the policy said Allstate would cover both “declarations separated from your dwelling by clear space” and “structures attached to your dwelling by only a fence, utility line, or similar connection.” (emphasis added).
It was the first time an Alabama appellate court had to analyze this issue, so the justices looked to appellate courts around the country for guidance. The Supreme Court of North Dakota said a detached garage “attached” to the insured’s residence by a deck belonged under Coverage B, not Coverage A, because the garage was only attached to the residence by the deck, and there was a clear space between the garage and the residence. See Dahms v. Nodak Mutual Insurance Co., 920 N.W.2d 293 (N.D. 2018).
The justices in Dahms also pointed to a case from Texas, Nassar v. Liberty Mut. Fire Ins. Co., 508 S.W.3d 254 (Tex. 2017), where the Texas Supreme Court opined that it would be a stretch to say a Coverage B-type structure was within the scope of Coverage A just because the Coverage B structure was connected to the residence by a fence or something like it. The fence would essentially “negate the clear space requirement that places the [structure] neatly in” the scope of Coverage B. (Nassar).
For Crook, the presence of the outdoor staircase that allowed access to the deck and boat dock from the dwelling was irrelevant. Photographic evidence submitted in court showed “clear space” between the dwelling, the deck, and the boat dock. Therefore, said the Supreme Court of Alabama, Allstate’s coverage of Crook’s damages under the Coverage B limit was proper and not a breach of policy.
Crook maintained that Allstate’s denial of his claim had been in bad faith. However, the justices pointed out there had been no breach because Allstate had correctly determined that Crook’s damages came under Coverage B. Without a breach, there was no viable claim for bad faith by definition. Therefore, Crook’s bad faith claim had been properly denied.
Negligence and contributory negligence
Even taking the lack of breach and lack of bad faith for granted, Crook asserted that Barker and Allstate had negligently procured a policy that did not fully cover his property. Crook stated he had relied on Barker and Allstate to procure an adequate policy and had taken no further action regarding his homeowners coverage based on the pre-loss letter he had received from Barker before the loss stating there were no issues with his coverage. Barker and Allstate responded by arguing Crook had been contributorily negligent because he had never read through the policy himself and decided whether the coverage limits were sufficient.
Two earlier cases from Alabama, Kanellis v. Pacific Indemnity Co., 917 So. 2d 149 (Ala. Civ. App. 2005) and Alfa Life Insurance Corp. v. Colza, 159 So. 3d 1240 (Ala. 2014), each demonstrated that an insured could be held contributorily negligent for not reading their insurance policy, which was also an affirmative defense for the insurer. In Kanellis, the Alabama Court of Civil Appeals ruled that the Kanellises were not entitled to the diminished value of their Porsche 911 after an accident because, had they read their policy, they would have discovered that the policy explicitly did not allow recovery for diminished value following a loss. In Colza, the Supreme Court of Alabama ruled that a widow was unable to collect the benefits of her decedent husband’s life insurance policy because the decedent had not satisfied certain policy conditions before his death despite receiving written material that emphasized those conditions.
The Supreme Court of Alabama applied the logic of Kanellis and Colza to the present case. Crook had repeatedly neglected to read his policy despite Allstate’s explicit instructions to do so at each renewal. Had Crook read his policy, the lower limit for Coverage B would have been readily apparent, and Crook could have requested higher limits. The justices found Crook had been “contributorily negligent as a matter of law” and affirmed the trial court ruling.
Conclusion
The Supreme Court of Alabama affirmed the judgment of the lower court.
Editor’s note: This case shows why it is so important for insureds to read their policies. In this case, Crook’s policy specifically stated that structures connected to the residence on the property “by only a fence, utility line, or similar connection [were] not considered attached structures.” As the court pointed out, if Crook had read his policy, he would have discovered that (1) both the deck and the boat dock were under Coverage B, and (2) that the coverage limit for Coverage B was much lower than the limit for Coverage A. Had Crook been uncomfortable with the lower limit for Coverage B, he could have spoken to Barker or Allstate and procured additional coverage for his deck and boat dock.