State Farm Fire and Casualty Company v. Scott C. Smith (mem. dec.) ( 2015 )

MEMORANDUM DECISION
Feb 05 2015, 9:54 am
Pursuant to Ind. Appellate Rule 65(D), this
Memorandum Decision shall not be regarded as
precedent or cited before any court except for the
purpose of establishing the defense of res judicata,
collateral estoppel, or the law of the case.
ATTORNEYS FOR APPELLANT ATTORNEY FOR APPELLEE
Dennis F. Cantrell William H. Walden
Tara Stapleton Lutes Munster, Indiana
Cantrell Strenski & Mehringer, LLP
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
State Farm Fire and February 5, 2015
Casualty Company, Court of Appeals Cause No.
45A04-1407-PL-336
Appellant-Defendant,
Appeal from the Lake Superior
v. Court.
The Honorable Thomas W. Webber,
Sr., Senior Judge.
Scott C. Smith, Cause No. 45D04-1206-PL-62
Appellee-Plaintiff
Baker, Judge.
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[1] Scott Smith lost his house and personal property to a fire. Smith and his
insurer, State Farm, disagreed about the value of his loss. Smith sued State
Farm for breach of contract and the trial court ultimately entered judgment for
Smith following two appraisals. Finding that the final appraisal, upon which
judgment was entered, did not comply with the terms of the parties’ insurance
contract, we reverse and remand.
Facts
[2] On July 16, 2010, Smith’s Lake County residence caught fire and was destroyed
for a total loss. State Farm insured Smith’s residence and personal property
pursuant to a homeowner’s insurance policy (the Policy). Smith submitted an
insurance claim, and State Farm eventually adjusted the loss and made
payments to him pursuant to the Policy. Smith, however, disagreed with the
amount of loss calculated by State Farm and requested that the claim be
submitted to appraisal as set forth by the Policy:
If you and we fail to agree on the amount of loss, either one can
demand that the amount of loss be set by appraisal. If either makes a
written demand for appraisal, each shall select a competent,
disinterested appraiser. Each shall notify the other of the appraiser’s
identity within 20 days of receipt of the written demand. The two
appraisers shall then select a competent, impartial umpire. . . . The
appraisers shall then set the amount of the loss. [If the appraisers
agree,] the amount agreed upon shall be the amount of the loss. If the
appraisers fail to agree within a reasonable time, they shall submit
their differences to the umpire. Written agreement signed by any two
of these three shall set the amount of the loss. . . .
Appellant’s App. p. 53.
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[3] Smith and State Farm each selected an appraiser. The two appraisers were
unable to agree upon the amount of the loss, so the matter was submitted to an
umpire. The umpire signed the First Appraisal Agreement, dated July 21,
2011, which calculated Smith’s losses as follows:
 Recovery Cost of Dwelling: $103,734
 Recovery Cost of Personal Property: $69,000
 Recovery Cost of Debris Removal: $5,340
 Recovery Cost of Landscaping: $4,260
 Recovery Cost of Other Structures: $1,294
 Recovery Cost of Additional Living Expenses: $31,110
 Total Loss: $214,838
Id. at 7.
[4] The Policy provides that until repair or replacement of a dwelling is completed,
State Farm “will pay only the actual cash value at the time of the loss of the
damaged part of the property[.]” Id. at 50. After repair or replacement is
completed (which must occur within two years), the insured must notify State
Farm within thirty days and submit certain documentation regarding the repair
or replacement. At that time, State Farm will pay the balance of the loss. The
same process is followed with respect to personal property. Additionally, the
Policy defines Additional Living Expenses (ALE) as follows:
When a Loss Insured causes the residence premises to become
uninhabitable, we will cover the necessary increase in cost you incur to
maintain your standard of living for up to 24 months. Our payment is
limited to incurred costs for the shortest of: (a) the time required to
repair or replace the premises; (b) the time required for your household
to settle elsewhere; or (c) 24 months.
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Id. at 43.
[5] Pursuant to these Policy terms, after the First Appraisal Agreement was
submitted, State Farm calculated the actual cash value of Smith’s dwelling and
personal property and paid Smith those amounts. State Farm also paid Smith
the full amount of ALE: $31,110. The total amount paid by State Farm to
Smith for the actual cash value of the dwelling and personal property plus ALE
was $148,524.78.
[6] On June 6, 2012, Smith filed a lawsuit against State Farm alleging breach of
contract. Specifically, Smith argued that State Farm should have paid him the
full loss amount of $214,838. State Farm filed a motion for summary judgment
on July 8, 2013, arguing that it had complied with the terms of the Policy and
the First Appraisal Agreement. Smith filed a cross-motion for summary
judgment. Following briefing and oral argument, the trial court denied both
summary judgment motions. Specifically, the trial court held as follows:
There is no disagreement between the parties for the amount paid by
the defendant to the plaintiff [for ALE under] the policy. The
defendant argues that it has paid the amount owing under the terms of
said policy to the plaintiff and that therefore it [is] entitled to a
judgment as a matter of law.
***
. . . [T]he dispute between the parties [is] that the plaintiff is arguing
that he is entitled to replacement costs as determined by the appraisal
agreement and the defendant argues that the plaintiff is only entitled to
the actual cash value of the home and personal property pursuant to
[the Policy].
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***
The Court further finds that the defendant has notified the plaintiff that
replacement costs were available to the plaintiff for the home and
personal contents subject [to] the terms of this policy. The Court
further finds that at the time of the hearing the plaintiff had not
replaced his home either by buying or building another home . . . [or]
has not notified the defendant of the same.
Further, the fire which is the subject of this litigation took place on
July 16, 2010, and by the terms of the policy replacement costs were
only available to the plaintiff up to July 16, 2012. . . .
***
The Court further finds that . . . there is certainly a dispute as to the
value of the home and the personal property. Further pursuant to the
policy of insurance if there is a dispute as to the value of property, it is
to be determined by appraisal.
And while the appraisers . . . have made their appraisal of the dwelling
and personal property, it was done on replacement value and not on
actual cash value, and only actual cash value is available to the
plaintiff at this time.
. . . [T]here is a material issue of fact unresolved as to the actual cash
value of the dwelling at the time of the fire and as to the cash value of
personal property lost in said fire and that said values need to be
determined by the appraisers and not by the defendant’s claims
adjuster.
***
. . . [T]he plaintiff is no longer entitled to the replacement cost values
as provided in the policy of insurance . . . .
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***
Further, the parties should proceed to have the appraisers as selected
by the parties and the umpire as appointed by the [trial court]
reappraise the dwelling and personal property for their actual cash
value on the date of the fire, which values should be dispositive of this
cause of action.
Id. at 223-30.
[7] Following that order, Smith’s appraiser and the umpire conducted a second
appraisal. State Farm’s appraiser did not take part or have input in that
process. On January 13, 2014, the Second Appraisal Agreement was entered,
calculating the actual cash value of Smith’s losses as follows:
 Dwelling Loss $93,360.06
 Personal Property Loss $62,100.00
 Debris Removal Loss $5,340.00
 Landscaping Loss $4,260.00
 Other Structures Loss $1,394.00
 Loss of Use1 $106,202.00
 Total $272,656.06
Id. at 233. On January 21, 2014, Smith filed a motion for judgment on the
Second Appraisal Agreement. On February 3, 2014, State Farm filed its
response and asked that the trial court deny Smith’s motion and vacate the
Second Appraisal Agreement.
1
The parties and trial court agree that “Loss of Use” is synonymous with ALE.
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[8] On March 21, 2014, the trial court denied Smith’s motion. The trial court
observed that while the summary judgment order found that the parties agreed
regarding the amount of Smith’s ALE loss, the Second Appraisal Agreement
increased the ALE by $75,092. Additionally, the trial court noted that it was
undisputed that “the State Farm appraiser did not participate in the discussions
or negotiations of the award.” Id. at 271. The trial court ordered that a third
appraisal take place and that State Farm was to arrange for its appraiser to
contact the umpire within the next fifteen days.
[9] On March 25, 2014, Smith’s attorney sent a message to State Farm’s attorney
stating that pursuant to the order, Smith’s appraiser “waits for your appraiser to
call him[.]” Id. at 341. On April 4, 2014, State Farm’s appraiser called Smith’s
appraiser and left him a voicemail message requesting a call back. On April 28
or 29, 2014, Smith’s appraiser called State Farm’s appraiser to inform him that
the appraisal process had already taken place—again, without input from State
Farm. On April 29, 2014, the umpire and Smith’s appraiser signed the Third
Appraisal Agreement, which calculated the actual cash value of Smith’s losses
as follows:
 Dwelling Loss $93,360.06
 Personal Property Loss $62,100.00
 Debris Removal Loss $5,340.00
 Landscaping Loss $4,260.00
 Other Structures Loss $1,394.00
 Loss of Use $113,689.68
 Total $280,143.74
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Id. at 275. On April 30, 2014, Smith filed a motion for judgment on the Third
Appraisal Agreement. State Farm objected and requested that the trial court
assign a new umpire. On May 20, 2014, the trial court granted Smith’s motion,
ordering that State Farm was to pay Smith $280,143.74 minus any advance
payments that had already been made. State Farm filed a motion to correct
error, which the trial court denied on June 27, 2014. State Farm now appeals.
Discussion and Decision
[10] State Farm argues that the trial court erroneously denied its motion to correct
error. We review a trial court’s ruling on a motion to correct error for an abuse
of discretion, which occurs when the decision is against the logic and effect of
the facts and circumstances before the court, as well as reasonable inferences
that may be drawn therefrom. Knowledge A-Z, Inc. v. Sentry Ins., 891 N.E.2d
581, 584 (Ind. Ct. App. 2008).
I. Validity of Third Appraisal Agreement
[11] State Farm contends that the trial court erred by awarding judgment to Smith
based upon the Third Appraisal Agreement. State Farm raises a number of
arguments to support this contention, but there is one that we find dispositive,
which is whether the third appraisal complied with the language of the Policy.
We find that it did not.
[12] The Policy sets forth the following process for an appraisal: (1) the insurer and
the insured each select an appraiser; (2) the two appraisers—or, if they cannot
agree, a trial court—select an umpire; (3) the two appraisers conduct their
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appraisals and arrive at a conclusion regarding the amount of the loss; (4) if the
appraisers agree, then the amount of the loss is established; (5) if the appraisers
disagree, then the matter is submitted to the umpire, who reaches his/her own
conclusion regarding the amount of the loss; and (6) agreement by two of the
three individuals establishes the amount of the loss. Appellant’s App. p. 53.
An insurance agreement is a binding contract to which we apply standard rules
of contract interpretation. Exide Corp. v. Millwright Riggers, Inc., 727 N.E.2d 473,
482 (Ind. Ct. App. 2000).
[13] In this case, the trial court concluded that a new appraisal was needed to
determine the actual cash value, as opposed to the replacement cost, of Smith’s
dwelling and personal property. Any new appraisal must be conducted
pursuant to the terms of the Policy, which binds Smith and State Farm alike.
Therefore, the appraisers selected by Smith and State Farm must both conduct
their appraisals and arrive at their final calculation regarding the actual cash
value of Smith’s losses. Then, if those amounts differ, the umpire will reach a
conclusion. That process, for whatever reason, was not followed during the
third appraisal. As that appraisal was not conducted pursuant to the terms of
the binding contract in place in this case, it is invalid and should not have been
relied upon by the trial court. Therefore, we reverse and remand with
instructions that a new appraisal in compliance with Policy terms take place.
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II. The ALE Award
[14] Although we have reversed and remanded, we choose to address State Farm’s
argument regarding ALE as the issue will necessarily arise again on remand.
State Farm argues that the trial court erred by awarding an amount of ALE that
is over three times higher than the amount represented by the First Appraisal
Agreement. We agree.
[15] The Policy language is clear: State Farm “will cover the necessary increase in
cost you incur to maintain your standard of living for up to 24 months.”
Appellant’s App. p. 43. Those twenty-four months expired for Smith on July
16, 2012. To the extent the ALE award accounted for expenses incurred past
that date, it was erroneous.
[16] Furthermore, the trial court explicitly noted in its summary judgment order that
the parties agreed regarding ALE costs, and the parties also agreed that State
Farm had already paid the full amount—$31,110—to Smith. There is simply
no basis in the record to require State Farm to pay more than this amount for
Smith’s ALE costs.2 Regardless of what occurs on remand, under no
circumstances is Smith entitled to a greater ALE award. Therefore, we reverse
the trial court’s order to the extent that it awarded more than $31,110 for
Smith’s ALE costs.
2
Unlike loss of dwelling and personal property, there is no replacement cost/actual cash value distinction
regarding ALE that needs to be adjusted. Appellant’s App. p. 43.
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[17] The judgment of the trial court is reversed and remanded.
Vaidik, C.J., and Riley, J., concur.
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