One of those appraisers, Jack Gillespie, had a professional liability insurance policy issued by Liberty Insurance Underwriters, Inc. Liberty, however, refused to defend Mr. Gillespie or indemnify him because it believed that the policy excluded coverage.

Mr. Rood received an assignment of Mr. Gillespie's rights against Liberty and sued the insurer for breach of contract.

The parties moved for summary judgment.

The Liberty Insurance Policy

Exclusion N to the Liberty insurance policy excluded liability coverage for any claim:

based upon or arising from Professional Services involving undeveloped or vacant land whose proposed use is for multiple unit single family housing development, condominium development, co-operative housing developments[,] or apartment developments consisting of 10 units or more.

The District Court's Decision

The court granted Liberty's motion.

In its decision, the court explained that Exclusion N barred coverage because it “clearly” excluded coverage for appraisals of vacant land purchased for the proposed purpose of building large apartment or condominium developments, and Mr. Gillespie valued the land based on a zoning variance that would have allowed its owner to build a high rise.

The court was not persuaded by Mr. Rood's contention that Mr. Gillespie had appraised the land “as is” – that is, as “raw land” that had a value that was not contingent on any future development.

The court pointed out that several parts of Mr. Gillespie's report belied this contention and demonstrated that his valuation was based on the ability and plan to develop the land into a mixed-use high rise. For instance, in selecting a valuation method, the report excluded the “income approach” because “vacant land seldom generates income in the Las Vegas market,” and instead applied the sales-comparison approach, which compares land to other recently sold parcels with comparable characteristics.

According to the court, the majority of the parcels that the report chose as comparison points “were developed or were to be subsequently developed for High-Rise/Mixed-Use development” – the same “highest and best use” that the report identified for the Las Vegas land.

Moreover, the court added, the report described the valuation of the land “'[a]s [i]s,' with all approved zoning changes and Use Permits in place” – a reference to the fact that the city had approved the land for a zoning variance that would have allowed the construction of “a 37-story mixed use development, including 414 residential units and 32,970 square feet of commercial space.”

Indeed, the court observed, approval of the special use permit was so central to the appraisal that the report stated that its “value opinion” would “become null and void” if the permit expired or was rescinded.

The court found that it was “clear” that Mr. Gillespie's appraisal was not based on raw land but on the land's capacity for becoming a high rise.

The court found that application of Exclusion N did not depend on whether a real estate development eventually was built or who the end user of Mr. Gillespie's services was. Under the exclusion's text, the only relevant factors were whether Mr. Gillespie was appraising land that was vacant or underdeveloped and whether that land's “proposed use” was the development of 10 or more of the types of housing units listed. The proposed use of the vacant land was the development of a high rise and, therefore, the exclusion precluded coverage, the court concluded.

The case is Rood v. Liberty Ins. Underwriters, Inc., No.: 2:16-cv-002586-JAD-NJK (D. Nev. April 5, 2019). Attorneys involved include: For Martin S Rood, Plaintiff: Spencer M Judd, Spencer M. Judd, Esq., Las Vegas, NV. For Liberty Insurance Underwriters, Inc., doing business as Liberty Mutual Group, Defendant: David A. Clark, Eric Tran, Lipson Neilson Cole Seltzer Garin, PC, Las Vegas, NV.