Tom Seeber v. General Fire and Casualty Company, Indiana Insurance Company, and Peerless Indemnity Insurance Company

FOR PUBLICATION
ATTORNEY FOR APPELLANT: ATTORNEYS FOR APPELLEE
GENERAL FIRE AND CASUALTY
CHRISTINE L. ZOOK COMPANY:
Ferguson & Ferguson
Bloomington, Indiana JAMES A. GOODIN
ELIZABETH J. WYSONG BERG
Goodin Abernathy, LLP
Indianapolis, Indiana
ATTORNEYS FOR APPELLEE
INDIANA INSURANCE COMPANY and
PEERLESS INSURANCE COMPANY:
RICK D. MEILS
WILLIAM M. BERISH
JOHN W. MERVILDE
Meils Thompson Dietz & Berish
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Oct 29 2014, 10:07 am
TOM SEEBER, )
)
Appellant-Plaintiff, )
)
vs. ) No. 53A01-1405-PL-208
)
GENERAL FIRE AND CASUALTY )
COMPANY, INDIANA INSURANCE )
COMPANY, and PEERLESS INDEMNITY )
INSURANCE COMPANY, )
)
Appellees-Defendants. )
APPEAL FROM THE MONROE CIRCUIT COURT
The Honorable E. Michael Hoff, Judge
Cause No. 53C01-1011-PL-2790
October 29, 2014
OPINION - FOR PUBLICATION
BRADFORD, Judge
CASE SUMMARY
In the fall of 2008, Appellant-Plaintiff Tom Seeber owned a commercial building
located on North College Avenue in Bloomington (the “Building”). The Building was leased
to Harry and Karen Kidwell, who operated Delilah’s Pet Shop. On November 3, 2008, the
Building was destroyed by fire and determined to be a total loss. At the time of the fire,
Seeber had an insurance policy for the Building that was issued by Appellee-Defendant
General Fire and Casualty Company (“General Fire & Casualty”). The Kidwells had an
insurance policy relating to their interests in the Building that was issued by Appellees-
Defendants Indiana Insurance Company and Peerless Indemnity Insurance Company
(collectively, “Indiana Insurance”). As a result of the fire, General Fire & Casualty and
Indiana Insurance (collectively, “the Insurance Companies”) agreed that the actual cash value
of the Building was $512,418.12 and the replacement cost was $650,812.70. The Insurance
Companies thereafter collectively paid Seeber the full $512,418.12 actual cash value of the
building.
Seeber subsequently claimed that he was entitled to receive the full $650,812.70
replacement cost of the building. Seeber filed a complaint for declaratory judgment on
November 1, 2010, asking the trial court to interpret his rights under the relevant insurance
policies. On December 30, 2013, Seeber filed a motion for summary judgment, along with
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designated evidence and a memorandum in support of his motion. Also on December 30,
2013, General Fire & Casualty and Indiana Insurance each filed motions for summary
judgment, designated evidence, and supporting memoranda. The trial court conducted a
hearing on all outstanding motions on March 21, 2014. On April 17, 2014, the trial court
entered an order denying Seeber’s motion for summary judgment and granting summary
judgment in favor of the Insurance Companies.
On appeal, Seeber contends that the trial court erred in denying his request for
summary judgment and in granting summary judgment in favor of the Insurance Companies.
Seeber specifically claims that the Insurance Companies were not entitled to an award of
summary judgment because, under the applicable policy language, he was entitled to recover
$650,812.70, the replacement cost of the building that was destroyed by fire. Concluding
that the trial court properly denied Seeber’s request for summary judgment and granted
summary judgment in favor of the Insurance Companies, we affirm.
FACTS AND PROCEDURAL HISTORY
A. Facts Relating to the Building Destroyed by Fire
In the fall of 2008, Seeber owned the Building.1 The Building was leased to Harry and
Karen Kidwell, who operated Delilah’s Pet Shop. On November 3, 2008, the Building was
destroyed by fire and was determined to be a total loss.
At the time of the fire, Seeber had an insurance policy for the Building that was issued
by General Fire & Casualty. The Kidwells had an insurance policy relating to their interests
1
Seeber owned the Building with his brother, John Seeber. John subsequently signed his interest in
the Building over to Seeber.
3
in the Building that was issued by Indiana Insurance. At some point, the Kidwells and
Seeber entered into a “settlement agreement and mutual release” that stated, in part: “The
Kidwells hereby assign to [Seeber] any and all right, title and interest the Kidwells may have
to receive additional proceeds under the [Indiana Insurance] Policy for loss or destruction of
the improvements on [the Building].” Appellant’s App. p. 67 (emphasis added). The release
further stated, however, that “[Seeber] acknowledge[s] that the Kidwells are making no
representation that any additional proceeds are available under the policy.” Appellant’s App.
p. 67.
After the fire, the Insurance Companies agreed that the actual cash value of the
Building was $512,418.12 and the replacement cost of the Building was $650,812.70. Based
upon an unwritten, agreed upon split for the actual cash value payment, General Fire &
Casualty paid $220,339.84 and Indiana Insurance paid $292,078.39 to the insureds. These
payments totaled the full agreed actual cash value of the Building.
B. Facts Relating to the Proposed Replacement Properties
In December of 2008, approximately one month after the fire, Seeber purchased a
25% interest in a property located on North Walnut Street2 in Bloomington. This property is
a three-story mixed-use building, with one-third of the building devoted to retail space and
the other two-thirds devoted to residential rental space. Seeber’s interest in the building was
valued at $422,118.00.
2
Both the parties and the trial court sometimes refer to this property as being located on North
Washington Street.
4
On August 12 and 27, 2010, Seeber notified Indiana Insurance of his purchase of an
interest in the North Walnut Street property and indicated that he intended to use the
purchase as a replacement property. On October 5, 2010, Seeber notified General Fire &
Casualty of the purchase of the proposed replacement property. At this time, Seeber’s
counsel was informed that General Fire & Casualty would review the replacement property
proposal. Seeber filed the underlying action before General Fire & Casualty finished their
review of the proposal.
During the pendency of the underlying action, on January 15, 2014, Seeber purchased
four condominiums located on West Allen Street in Bloomington. Each of the
condominiums is a single-story residential building. The value of the condominiums was
$355,000.00.
C. Procedural History
Seeber filed a complaint for declaratory judgment on November 1, 2010, requesting
that the trial court interpret his rights under the relevant insurance policies. In making this
request, Seeber claimed that he was entitled to receive the full $650,812.70 replacement cost
of the Building. Thus, Seeber argued that he was entitled to recover an additional
$138,394.58 from the Insurance Companies.
On December 30, 2013, Seeber filed a motion for summary judgment, along with
designated evidence and a memorandum in support of his motion. Also on December 30,
2013, General Fire & Casualty and Indiana Insurance each filed motions for summary
judgment, designated evidence, and supporting memoranda. The Insurance Companies filed
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briefs in opposition to Seeber’s motion for summary judgment, and Seeber filed a brief in
opposition to each of the Insurance Companies’ motions for summary judgment. Each party
also filed a reply memorandum in support of its motion for summary judgment.
The trial court conducted a hearing on the competing summary judgment motions on
March 21, 2014. Following the hearing, the trial court took the matter under advisement and
ordered each party to submit a proposed summary judgment order within two weeks. On
April 17, 2014, the trial court entered an order denying Seeber’s motion for summary
judgment and granting summary judgment in favor of the Insurance Companies. This appeal
follows.
DISCUSSION AND DECISION
Seeber contends that the trial court abused its discretion in denying his motion for
summary judgment and in granting summary judgment in favor of the Insurance Companies.
The Insurance Companies, for their part, contend that the trial court properly denied Seeber’s
motion for summary judgment and granted summary judgment in their favor.
A. Standard of Review
Insurance contracts are governed by the same rules of construction as
other contracts. Colonial Penn Ins. Co. v. Guzorek, 690 N.E.2d 664, 667 (Ind.
1997); see also Bowers v. Kushnick, 774 N.E.2d 884, 887 (Ind. 2002). Proper
interpretation of an insurance policy, even if it is ambiguous, generally
presents a question of law that is appropriate for summary judgment. Guzorek,
690 N.E.2d at 667. Clear and unambiguous policy language must be given its
ordinary meaning. Id. However, where there is an ambiguity, insurance
policies are to be construed strictly against the insurer. Am. States Ins. Co. v.
Kiger, 662 N.E.2d 945, 947 (Ind. 1996), reh’g denied. “This strict construal
against the insurer is driven by the fact that the insurer drafts the policy and
foists its terms upon the customer.” Id. “The insurance companies write the
policies; we buy their forms or we do not buy insurance.” Id.
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Failure to define a term in an insurance policy does not necessarily
make it ambiguous. Guzorek, 690 N.E.2d at 667. Rather, an insurance policy
is ambiguous only if a provision is susceptible to more than one reasonable
interpretation. Id. Additionally, an “ambiguity is not affirmatively established
simply because controversy exists and one party asserts an interpretation
contrary to that asserted by the opposing party.” Beam v. Wausau Ins. Co., 765
N.E.2d 524, 528 (Ind. 2002), reh’g denied.
Am. Home Assur. Co. v. Allen, 814 N.E.2d 662, 666-67 (Ind. Ct. App. 2004), trans.
dismissed.
Pursuant to Rule 56(C) of the Indiana Rules of Trial Procedure, summary judgment is
appropriate when there are no genuine issues of material fact and when the moving party is
entitled to judgment as a matter of law. Heritage Dev. of Ind., Inc. v. Opportunity Options,
Inc., 773 N.E.2d 881, 887 (Ind. Ct. App. 2002).
When reviewing the grant or denial of a motion for summary judgment “we
stand in the shoes of the trial court.” City of Gary v. Ind. Bell Tel. Co., 732
N.E.2d 149, 153 (Ind. 2000).… “In reviewing cross-motions for summary
judgment, we consider each motion separately.” Girl Scouts of S. Ill. v.
Vincennes Ind. Girls, Inc., 988 N.E.2d 250, 253 (Ind. 2013). Where, as here,
the dispute is one of law rather than fact, our standard of review is de novo.
See Spangler v. Bechtel, 958 N.E.2d 458, 461 (Ind. 2011). Further, the trial
court in this case entered findings of fact and conclusions of law, “neither of
which are required nor prohibited in the summary judgment context.” City of
Gary, 732 N.E.2d at 153. “Although specific findings aid our review of a
summary judgment ruling, they are not binding on this Court.” Id. Finally,
“we are not limited to reviewing the trial court’s reasons for granting or
denying summary judgment but rather we may affirm a grant of summary
judgment upon any theory supported by the evidence.” Wagner v. Yates, 912
N.E.2d 805, 811 (Ind. 2009).
Alva Elec., Inc. v. Evansville-Vanderburgh Sch. Corp., 7 N.E.3d 263, 267 (Ind. 2014).
A party seeking summary judgment bears the burden to make a prima
facie showing that there are no genuine issues of material fact and that the
party is entitled to judgment as a matter of law. American Management, Inc. v.
MIF Realty, L.P., 666 N.E.2d 424, 428 (Ind. Ct. App. 1996). Once the moving
7
party satisfies this burden through evidence designated to the trial court
pursuant to Trial Rule 56, the non-moving party may not rest on its pleadings,
but must designate specific facts demonstrating the existence of a genuine
issue for trial. Id. A trial court’s grant of summary judgment is “clothed with
a presumption of validity,” and the appellant bears the burden of demonstrating
that the trial court erred. Best Homes, Inc., 714 N.E.2d at 706 (quoting Barnes
v. Antich, 700 N.E.2d 262, 264-65 (Ind. Ct. App. 1998)).
Heritage Dev., 773 N.E.2d at 888.
B. Relevant Provisions of the Insurance Policies
1. General Fire & Casualty Policy
The relevant portions of the General Fire & Casualty insurance policy read as follows:
A. COVERAGES
We will pay for direct physical loss of or damage to Covered Property at the
premises described in the Declarations caused by or resulting from any
Covered Cause of Loss.
****
E. PROPERTY LOSS CONDITIONS
****
6. Loss Payment
In the event of loss or damage covered by this policy:
a. We will not pay you more than your financial interest in the Covered
Property.
b. We will either:
(1) Pay the value of lost or damaged property, as described in
paragraph d. below;
(2) Pay the cost of repairing or replacing the lost or damaged
property, plus any reduction in value of repaired items;
(3) Take all or any part of the property at agreed or appraised value;
or
(4) Repair, rebuild or replace the property with other property of
like kind and quality.
c. We will give notice of our intentions within 30 days after we receive
the sworn statement of loss.
d. We will determine the value of Covered Property as follows:
(1) If Replacement Cost is designated in the Declarations for
Buildings or Business Personal Property, loss shall be adjusted
on the replacement cost value of the property, except as
8
provided in (3) through (8) below.
(a) You may make a claim for loss or damage covered by
this insurance on an actual cash value basis instead of on
a replacement cost basis. In the event you elect to have
loss or damage settled on a actual cash value basis, you
may still make a claim on a replacement cost basis if you
notify us of your intent to do so within 180 days after the
loss or damage.
(b) We will not pay on a replacement cost basis for any loss
or damage:
(i) Until the lost or damaged property is actually
repaired or replaced; and
(ii) Unless the repairs or replacement are made as
soon as reasonably possible after the loss or
damage.
(c) We will not pay more for loss or damage on a
replacement cost basis than the least of:
(i) The cost to replace, on the same premises, the lost
or damaged property with other property:
i. Of comparable material and quality; and
ii. Used for the same purpose; or
(ii) The amount you actually spend that is necessary
to repair or replace the lost or damaged property.
Appellant’s App. pp. 151, 169.
2. Indiana Insurance Policy
A. Coverage
We will pay for direct physical loss of or damage to Covered Property at the
premises described in the Declarations caused by or resulting from any
Covered Cause of Loss.
****
E. Loss Conditions
****
4. Loss Payment
a. In the event of loss or damage covered by this Coverage Form, at our
option, we will either:
(1) Pay the value of lost or damaged property;
(2) Pay the cost of repairing or replacing the lost or damaged
property subject to b. below;
(3) Take all or any part of the property at an agreed or appraised
9
value; or
(4) Repair, rebuild or replace the property with other property of
like kind and quality, subject to b. below.
We will determine the value of lost or damaged property, or the cost of
its repair or replacement, in accordance with the applicable terms of the
Valuation Condition in this Coverage Form or any applicable provision
which amends or supersedes the Valuation condition.
b. The cost to repair, rebuild or replace does not include the increased cost
attributable to enforcement of any ordinance or law regulating the
construction, use or repair of any property.
c. We will give notice of our intentions within 30 days after we receive
the sworn proof of loss.
d. We will not pay you more than your financial interest in the Covered
Property.
e. We may adjust losses with the owners of lost or damaged property if
other than you. If we pay the owners, such payments will satisfy your
claims against us for the owners’ property. We will not pay the owners
more than their financial interest in the Covered Property.
****
G. Optional Coverages
****
3. Replacement Cost
****
d. We will not pay on a replacement cost basis for any loss or damage:
(1) Until the lost or damaged property is actually repaired or
replaced; and
(2) Unless the repairs or replacement are made as soon as
reasonably possible after the loss or damage.
****
e. We will not pay more for loss or damage on a replacement cost basis
than the least of (1), (2) or (3), subject to f. below:
(1) The Limit of Insurance applicable to the lost or damaged
property;
(2) The cost to replace the lost or damaged property with other
property:
(a) Of comparable material and quality; and
(b) Used for the same purpose; or
(3) The amount actually spent that is necessary to repair or replace
the lost or damaged property.
****
f. The cost of repair or replacement does not include the increased cost
attributable to enforcement of any ordinance or law regulating the
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construction, use or repair of any property.
Appellant’s App. pp. 263, 271-72, 275-76.
C. Analysis
Again, Seeber contends that the trial court erred in denying his motion for summary
judgment and in granting summary judgment in favor of the Insurance Companies. For their
part, the Insurance Companies contend that the trial court properly granted their motions for
summary judgment and denied Seeber’s motion for summary judgment.
1. Overview of Actual Cash Value vs. Replacement Cost
The actual cash value policy is a pure indemnity contract. Its purpose is
to make the insured whole but never to benefit him because a fire occurred.
Appleman on Insurance 2d § 3823 at pp. 218-219; Brand Distributors Inc. v.
Insurance Co. of North America, (1976) 532 F.2d 352 (4th Cir.). Replacement
cost coverage, on the other hand, reimburses the insured for the full cost of
repairs, if he repairs or rebuilds the building, even if that results in putting the
insured in a better position than he was before the loss.
If a fire occurs in a new building, the actual cash value generally is
equivalent to the cost of repairs since the full cost of repair merely restores
what was there. It indemnifies but does no more. If an old building burns to
the ground, the actual value is commonly established by reference to its fair
market value less the value of the land on which the building sits. If an old
building has only very minor fire damage, repairs probably do not result in a
substantial betterment, and depreciation is usually ignored in adjusting the loss.
However when the building is old or obsolescent and is seriously damaged but
not destroyed, the actual cash value is more likely to be disputed. The courts
uniformly hold, as did the Court of Appeals, that actual cash value insurance is
strictly a contract of indemnity. The insured should be made whole but not be
put in a better position than he was in before the fire. Braddock v. Memphis
Fire Ins. Corp., (1973) Tenn., 493 S.W.2d 453.
“A problem common to all the foregoing tests is the extent to
which physical deterioration and obsolescence should be taken
into account in computing loss. If the principal of indemnity be
adhered to, depreciation must be considered in loss adjustment
so that the insured will not receive the equivalent of a new
building for a loss of the old one. Insurance law is not
11
concerned with the estimated depreciation charged off on the
books of business establishment but rather with the actual
deterioration of a structure by reason of age and physical wear
and tear, computed at the time of the loss.” 49 Colum. L.R.,
818, 823. The same principle is discussed at 44 Am. Jur. 2d
549, Appleman on Insurance 2d, § 2823 at p. 226.
A building constructed thirty years ago will have many interior features
and structural components that are not only old and used, but of a style,
material and color no longer available or in fashion. If damaged by a fire, they
will be replaceable only with new components and the fire will be the occasion
of renovation and remodeling which, if done without reference to a fire, would
be an improvement paid for by the owner. 44 Am. Jur. 2d p. 549. In such
event, the property is worth more and the fire loss provided the insured with an
enhancement for the value of his assets.
Replacement cost insurance on the other hand is not a pure indemnity
agreement. It is an optional coverage that may be purchased and added to a
basic fire policy by endorsement. It is more expensive because the rate of
premiums is higher and the amount of insurance to which that rate applies is
usually higher.
Replacement cost coverage is available on the insurance market to meet
the need which troubled the plaintiff. That need may be expressed this way:
Since fire is an unwanted and unplanned for occurrence, why
can’t the owner of an older home buy insurance to cover the full
cost of repair even if those repairs make it a better or more
valuable building? Since at the time of fire the homeowner may
be least able to pay for improvements, why can’t that hazard be
insured too? Instead of apportioning the cost of repair after a
fire between the actual cash value, to be paid by the insurer, and
the betterment to be paid by the insured, why can’t the
policyholder simply pay a higher premium each year but not
have to pay anything more to have his home fully repaired in the
event of fire?
When the insurance industry adopted a standard extension of coverage
endorsement to provide replacement cost, it took into account the one great
hazard in providing this kind of coverage: the possibility for the insured to reap
a substantial profit, if fire occurs. See Higgins v. Insurance Co. of North
America, (1970) 256 Or. 151, 469 P.2d 766, 66 A.L.R. 3d 871 and the
annotation beginning at 66 A.L.R. 3d 886.
Travelers Indem. Co. v. Armstrong, 442 N.E.2d 349, 352-53 (Ind. 1982).
2. First Proposed Replacement Building (Building on North Walnut Street)
12
Seeber argues that the first proposed replacement building, i.e., the building located on
North Walnut Street, qualified as a replacement property under both of the applicable
insurance policies, and, as a result, he was entitled to receive replacement costs for this
property. Without conceding that this property would qualify as a replacement property, the
Insurance Companies argue that Seeber is not entitled to any additional funds relating to the
purchase of this property because the $512,418.12 actual cash value that has already been
paid to Seeber was greater than the $422,118.00 Seeber spent to purchase his interest in the
property.
With respect to replacement cost coverage provided by the applicable insurance
policies, both the General Fire & Casualty and Indiana Insurance Policy stated as follows:
We will not pay more for loss or damage on a replacement cost basis than the
least of …
[(1)] The cost to replace, on the same premises, the lost or damaged property
with other property:
[(a)] Of comparable material and quality; and
[(b)] Used for the same purpose; or
[(2)] The amount you actually spend that is necessary to repair or replace the
lost or damaged property.
Appellant’s App. pp. 169, 276. This language is not ambiguous as it clearly states that, with
respect to a claim for replacement cost coverage, the Insurance Companies will pay the least
of the cost to replace the property with other property of comparable material and quality that
is used for the same purpose or the amount one actually spends to replace the lost or damaged
property. As such, because the Insurance Companies paid Seeber an amount that was
approximately $90,000.00 greater than the amount that they would be obligated to pay under
a claim for replacement cost coverage, i.e., the $422,118.00 that Seeber actually spent to
13
replace the Building, the Insurance Companies do not owe Seeber any additional funds
relating to the purchase of an interest in the building located on North Walnut Street.
3. Second Proposed Replacement Building (Condominiums on West Allen Street)
Seeber contends that in granting summary judgment in favor of the Insurance
Companies, the trial court erroneously determined that the second proposed replacement
building, i.e., the condominiums on West Allen Street, did not qualify as replacement
property under the terms of the applicable insurance policies. For their part, the Insurance
Companies contend that the trial court properly determined that the condominiums did not
qualify as replacement property because the condominiums were not used for the same
purpose as the Building or purchased in a timely fashion.
a. Whether the Condominiums Would Be Used for Same
Purpose as the Building Destroyed By Fire
Seeber argues that the Building and the condominiums were used for the same
purpose, i.e., investment properties that were leased to tenants. The Insurance Companies,
for their part, argue that the condominiums, which were indisputably used for residential
purposes, were not used for the same purpose as the Building, which was used for
commercial purposes. In support of their claim that the properties were not used for the same
purpose, the Insurance Companies cite to Fitzhugh 25 Partners, L.P. v. KILN Syndicate KLN
501, 261 S.W.3d 861 (Tex. App. 2008), an opinion of the Court of Appeals of Texas.
In Fitzhugh, the court considered whether a proposed replacement property would be
used for the same purpose as a property that had been destroyed by fire. In interpreting
similar language to that included in the insurance policies that apply in the instant matter, the
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Fitzhugh court found as follows:
The word “replacement” is not defined in the policy. We must, therefore, give
the term its ordinary and generally accepted meaning. See Am. Mfrs. Mut. Ins.
Co. v. Schaefer, 124 S.W.3d 154, 158-159 (Tex. 2003). Webster’s Third New
International Dictionary defines “replacement” as a “substitution” or “a new
fixed asset or portion of an asset that takes the place of a discarded one.” See
Webster’s Third New International Dictionary 1925 (1993). For something to
be a “substitution” or “take the place of” the original, it must serve the same
function as the original. The vast majority of cases that have examined this
issue have concluded that the term “replacement” inherently contains the
element of functional similarity. See, e.g., SR Int’l Bus. Ins. Co. Ltd. v. World
Trade Ctr. Props., LLC, 445 F. Supp. 2d 320, 334 (S.D.N.Y. 2006) (for rebuilt
property to be replacement there must be “functional similarity”); [Harrington
v. Amica Mut. Ins. Co., 645 N.Y.S.2d 221, 226 (N.Y. App. Div. 1996)] (new
structure did not “replace” insured’s home where insured did not live there);
Conway v. Farmers Home Mut. Ins. Co., 26 Cal. App. 4th 1185, 31 Cal. Rptr.
2d 883 (1994) (term “replace” includes substituting an item that serves same
function); [Huggins v. Hanover Ins. Co., 423 So. 2d 147, 150 (Ala. 1982)]
(house was a “replacement” where it served same function as original). but see
Ruter v. N.W. Fire & Marine Ins. Co., 72 N.J. Super. 467, 178 A.2d 640, 643
(1962) (replacement need not be identical to original or intended for same
occupancy and use).
261 S.W.3d at 864 (footnote omitted). The court agreed with Fitzhugh’s contention that “the
policy’s limitation on recovery of replacement costs to ‘the cost of repair or replacement with
similar materials on the same site and used for the same purpose’ is merely a method of
calculating damages and not a requirement that Fitzhugh replace the apartment complex with
substantially identical buildings at the same physical location.” Id. at 864-65. The court
disagreed, however, with Fitzhugh’s contention that it could spend the money it recovered
under a claim for replacement costs on anything it chose because “[s]uch an interpretation
reads the condition that the property be ‘replaced’ out of the policy.” Id. at 865.
The court determined that:
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Under the policy, Fitzhugh was permitted to replace the apartments with
different buildings at a different site as long as the new buildings were devoted
to the same use. For example, it could have purchased or built a larger
apartment complex at a different location. See Davis v. Allstate Ins. Co., 781
So. 2d 1143, 1144-45 (Fla. Dist. Ct. App. 2001). The amount of Fitzhugh’s
recovery under the policy was limited to the cost of rebuilding similar or
comparable buildings on the same site or the amount it actually spent to
replace the property, whichever was less. See id.; see also Republic
Underwriters Ins. Co. v. Mex-Tex, Inc., 150 S.W.3d 423, 425 (Tex. 2004). For
the replacement cost coverage to apply, however, Fitzhugh must have
purchased or built a property that was functionally similar to the property that
was destroyed. See S & S Tobacco & Candy Co., Inc. v. Greater New York
Mut. Ins. Co., 224 Conn. 313, 617 A.2d 1388, 1390-91 (1992). If the new
property is not functionally similar to the destroyed property, it is an unrelated
expenditure and the destroyed property has not been “replaced.”
Id. at 865. The court concluded that a commercial office park was not “functionally similar”
to the destroyed apartment complex despite Fitzhugh’s argument that both were properties
with rent-paying tenants. Id. In reaching this conclusion, the court stated acceptance of
Fitzhugh’s argument in this regard “would expand the definition of the term ‘replacement’
far beyond its reasonable meaning” and noted that “[u]nder Fitzhugh’s analysis, any form of
property with tenants could serve as a replacement for the apartment complex.” Id. The
court further stated that
This type of analysis would allow an insured to replace a house with an
apartment complex because they are both “residential” or to replace an office
building with a hospital because they both involve the rendition of professional
services to the public. Overall, an office park, which has as its primary
function the conduct of business, is not functionally similar to an apartment
complex, which functions primarily as a residence for individuals and families.
Id. In light of its conclusion that the commercial office park was not functionally similar to
the destroyed apartment complex, the court concluded that the trial court correctly granted
summary judgment in favor of the insurance company because Fitzhugh did not replace the
16
destroyed property covered under the policy and, therefore, did not meet the condition
precedent to its recovery of replacement costs. Id. We find the analysis and conclusions of
the Fitzhugh court to be compelling.
Again, with regard to replacement cost coverage, the insurance policies at issue in the
instant matter state that a replacement property must be “[u]sed for the same purpose” as the
original property. Appellant’s App. pp. 169, 276. Here, the Building was a single-story
building that was leased to a tenant who used the building for commercial retail purposes.
The second proposed replacement property was four condominiums that would be used for
residential purposes. Review of the applicable insurance policies reveals that both the
General Fire & Casualty Policy and the Indiana Insurance Policy explicitly state that the
policies apply to commercial property. The language contained in the applicable insurance
policies suggests that the policies consider commercial use to be different than residential
use.
Further, we agree with the court’s determination in Fitzhugh that it would expand the
definition of the term “replacement” far beyond its reasonable meaning if we were to accept
Seeber’s claim that the properties at issue were used for the same purpose merely because
they were investment properties which had tenants. We therefore conclude that the trial court
properly determined that the condominiums were not used for the same purpose as the
Building.3
CONCLUSION
3
Having made this conclusion, we need not consider whether the second proposed replacement
property was purchased within a reasonable time after the destruction of the Building.
17
In sum, we conclude that (1) Seeber is not entitled to any additional funds with respect
to the first proposed replacement property and (2) the second proposed replacement property
does not qualify as a replacement property because it will not be used for the same purpose as
the Building. As such, we further conclude that the trial court properly denied Seeber’s
motion for summary judgment and granted summary judgment in favor of the Insurance
Companies.
The judgment of the trial court is affirmed.
BARNES, J., and BROWN, J., concur.
18