A very positive aspect of working at Merlin Law Group is working with many passionate lawyers in the same area of law. As a result, we get to share ideas about the best practices for handling cases and questions that arise in the area of property insurance law. We even have an attorney who is a licensed attorney, Ruck DeMinico, who does not work on any cases as primary attorney but is a Knowledge Manager to support other attorneys. We are better able to discover, investigate and present the best arguments for our clients.
This Wednesday I will be giving a presentation at the First Party Claims Conference, which will in part discuss the new trends in valuation and arguments that some insurance companies are now making to avoid payment based on policy language. This topic is extremely important to policyholders and public adjusters because these new arguments leave policyholders without benefits despite physical damage to the insured property.
One example is a federal case in Colorado that was settled last week.1 American Family Insurance Company refused to pay its policyholder, arguing that:
Because the plaintiff’s wooden roofs outlived their life expectancy prior to the alleged injury, the actual cash value of his wooden roofs is zero and his claim for damages fails.
Even if the damage was covered, which American Family disputes, the actual cash value of plaintiff’s aged wood roof as defined in his policy is zero, and no additional amounts would be owed under the policy.
This is almost laughable—the insurance company assumes the damage occurred but owes nothing because the age of the wood shavings is longer than their life expectancy – except the insurance company won.
The court recited the facts of an earlier decision on a motion to dismiss:
Mr. Morganti renewed his American family homeowner’s insurance in early 2019. Six months later, on June 7, 2019, a windstorm hit Mr. Morganti’s home in Castle Rock. Mr. Morganti’s home is in an area with little wind protection, so the storm, which averaged 62 miles per hour with gusts of up to 112 miles per hour, hit his home hard. The wood shingled roofs of the garage and the main building of the home were severely damaged. Mr Morganti says the damage was “clearly visible”: “wood shakes were raised and staples loosened”; and ‘several rows or sections of wooden shakes [shingles] were at the same time elevated in a perfectly straight manner.’
Mr. Morganti notified American Family of the windstorm damage in early October 2019 and stated that he intended to make a claim on his insurance. American Family assigned the case to one of its adjusters, Corwin Frey, who inspected the property on October 16. Mr. Frey took pictures of the damage. These photos, according to Mr. Morganti, show damage consistent with the windstorm: entire rows of shingles raised in the same manner, fresh breaks and splits in the wood; not wear and tear, such as occasional instances of “warping or bowing” or “buckling or bowing.” The same day that Mr. Frey inspected the property, he denied coverage on behalf of American Family in a denial of coverage letter to Mr. Morganti. Mr. Frey wrote that he found no damage from the storm in his inspection. The lifted tremors, explained Mr. Frey, were ‘not compatible with wind damage and [were] a result of age, wear or other anomaly.’ Mr. Morganti argues that Mr. Frey’s conclusions went against both industry standards for wind damage and common sense.
Mr. Morganti sought the assistance of a licensed roofing contractor, Ben Landa, who inspected the property and, against American Family, concluded that the windstorm caused damage to the roofs. He concluded that the roofs needed to be replaced and cost about $81,000. But without benefits from American Family, Mr. Morganti could not pay Mr. Landa. So Mr. Landa recommended that Mr. Morganti get a second opinion from a public adjuster named Peter Ridulfo. Mr. Ridulfo inspected the property in February 2020 and concluded that the damage to the roofs was the result of the storm, not wear and tear. Mr. Ridulfo sent American Family a sworn proof of loss on May 12, 2020 in the amount of approximately $84,000.
Because of Mr. Ridulfo’s evidence of loss, American Family agreed to re-inspect the property. On May 19, American Family sent two of its adjusters, Dustin Sanderson and Brian Mater, to take a look at the property with Mr. Ridulfo and Seamus Bradley, a licensed contractor. Sanderson emailed Ridulfo several days later to say that, in his opinion, the damage to the roof was the result of wear and tear.
After the lawsuit was filed, American Family’s attorneys made the additional argument that the value of the damaged roof was zero before the damage occurred. This was American Family’s winning argument:
Plaintiff’s policy provides coverage for wooden shake roofs on an actual cash basis. The claimant policy’s section on how we settle losses states:[w]e will pay the cost of repairing or replacing … subject to the following: … (5) For any loss of wood roof surfaces, we will pay at least: the actual cash value, the cost of repairing or replacing damaged property with materials of construction; or any applicable policy limit.’
Not all policies contain a definition of actual cash value and courts have been called upon to interpret this phrase. But here, actual cash value is defined in the plaintiff’s policy—in fact, it’s the very first term defined in the policy’s definition section.
Actual cash value. This means the lesser of:
a. the value of damaged property;
b. change in value of damaged property directly due to the loss;
c. cost of repairing damaged property; or
d. cost to replace damaged property minus any deductions for:
(3) obsolescence; or
at the time of the loss.
The ACV definition has been in the claimant’s policy since 2015 and the claimant was notified of the definition in a 2015 change explanation letter. The 2015 letter also informed plaintiff that the language in the “Actual Cash Value Wood Roof Surface Loss Settlement Endorsement” previously attached to his policy “has been integrated into the Gold Star Homeowners basic policy” under the How We Settle Losses section. The plaintiff received the letter and produced it. He renewed his policy several times after.
American Family’s retained cost expert, using Plaintiff’s May 2, 2020 estimate as the assumed replacement costs for his damages calculation, determined the actual cash value under each of the four methods defined below. Mr. Logan is the only expert in this case who does this. In rebuttal, the plaintiff raised several disputes about Mr. Logan’s approach to method (d), however, since method (b) results in a lower calculation than either methods (a), (c) or (d), and the definition states the actual cash value is the least of the four methods, these disputes are not essential. Specifically, because the wood roofs were beyond their remaining useful life before the June 2019 storm and remained above their remaining useful life after, the same depreciation percentage applies, resulting in zero net change.
Plaintiff cannot establish a genuine issue of fact that additional amounts are owed. Plaintiff did not offer a calculation of actual cash value or even acknowledge that the damages to the woodshed’s roof surface were limited to actual cash value during the claim or in litigation. See also, (requirement for compensation costs for presuit). Plaintiff’s experts did not address the actual cash value language in their confirmatory reports. It was not until American Family retained a cost expert to calculate the actual cash value under each of the policy definition’s four methods that plaintiff even acknowledged the language of the How We Settle Losses Section but continued to ignore the policy’s definition of the actual cash value. Although there are disputes about how the depreciation method (method (d)) is calculated, these are immaterial. The definition expressly limits the actual cash value to the smallest of the four methods and that is undisputed
the depreciation method is not the lowest.
Plaintiff’s “evidence” that the roof was in good condition prior to the alleged loss date is conclusive. The undisputed facts show that plaintiff has no idea of the condition of his roof because he never had it inspected and did no maintenance. UF #7, 36. See Gallegos v. Safeco Ins. Co. of Am.no. 14-CV-1114-WJM-MJW, 2015 WL 3526956, at *2 (D. Colo. June 4, 2015), aff’d, 646 F. App’x 689 (10th Cir. 2016) (dismissing) breach of contract claims based on of the claimant’s failure to meet its burden of proof for wear and tear exclusions exclusive of coverage).
The order granting summary judgment agreed, stating:
Applying the contract’s wood roof formula, American Family argues that Mr. Morganti is not entitled to recovery. Its expert witness, Mr. Logan, looking at item b. of the contract’s schedule, calculated that the “change in value of damaged property directly due to the loss” was $0, which, if true, would preclude recovery by Mr. Morganti. Mr. Morganti alleges, without elaborating, flaws in Mr. Logan’s analysis, such as allegedly using an outdated estimate, failing to limit his calculation to wood roof area only, and falsely stating that there was no change in property value…Mr. Morganti’s rebuttal consists of unsupported claims. He does not cite, pursuant to Rule 56(f), to particular material in the record that supports a contrary conclusion, or show that the cited material does not demonstrate the absence of a material dispute. I believe that Mr. Logan’s ACV analysis is undisputed for purposes of this motion.
There are lessons from this case that I will go into in much more detail on Wednesday. However, public adjusters are doing policyholders a disservice if they don’t read the policy language and then come up with a true cash value valuation as well as a replacement cost valuation when required to do so. I can guarantee you that American Family collected premium on that roof for a long time. It did not exclude the roof from covered property. The defect when the lawsuit was filed did not prove an actual cash value of the damage.
Although this is a Colorado case, I also noted the need for proof of actual cash value Real Cash Value Appraisals Must Be Done in Florida – How a Church Lost to Church Mutual.
I look forward to seeing those who can attend the First Party Claims Conference West in Marina Del Rey on Tuesday and Wednesday.
You must look within for value, but must look beyond for perspective.
– Denis Waitley
1 Morganti v. American Family Mut. ins. Co.No. 1:20-cv-03295 (D.Colo. Mar. 21, 2023).