Recovering Replacement Costs of Damaged Property
In Area Erectors Inc. v. Travelers Property Casualty, Area Erectors Inc. (AEI) filed a complaint for declaratory judgment against Travelers Property Casualty, seeking a declaration that it is entitled to recover the replacement costs of its damaged property and seeking statutory penalties from Travelers for its vexatious refusal to settle its claim. At issue is the measure of the valuation of the property under the policy. In its complaint for declaratory judgment, AEI alleged that on July 21, 2008, an American 7150 crane that it owned was damaged when an unexpected microburst storm came through a construction site and toppled concrete walls onto the crane. Two days later, a Link-Belt crane owned by AEI, was damaged in an unrelated incident when the boom hoist cable snapped and fell onto the manlift. AEI was insured under the commercial inland marine insurance policy issued by Travelers. AEI filed claims under the policy for the two damaged cranes.
The court addressed four issues: whether actual cash or replacement cost is the appropriate method of valuation; whether the insured is entitled to statutory penalties and attorney fees; whether the insurer acted vexatiously and unreasonably; and whether the insurer, in handling the claim for the second crane, acted vexatiously and unreasonably.
To determine whether replacement costs of the 7150 crane is the appropriate valuation for the loss of the crane, the court looked to the endorsement titled,” ‘Contractors Equipment’ Coinsurance and Valuation.” Paragraph A of the endorsement established the minimum amount of insurance AEI was required to maintain on its equipment before a coinsurance penalty is incurred. Regardless of the age of the equipment, AEI was required to insure its property for at least 80% of its value to avoid the penalty in the event of a loss. The value of “listed” items less than five years old is the replacement cost. The value of listed items over five years old and unlisted items is the actual cash value. Here it is undisputed that both cranes were more than five years old at the time of the loss. Paragraph B of the endorsement provided two formulas to calculate the value of lost property, depending upon which of the two valuations applies. The court determined that when the policy is read as a whole, including paragraphs A and B of the “Contractor’s Equipment’ Coinsurance and Valuation,” the endorsement is not ambiguous, and the actual cash value is the proper method of valuation for the damaged American 7150 crane.
In regard to the second issue of AEI’s claims under section 154.6 of the Insurance Code, the court found that this section does not give rise to a private remedy or cause of action by a policyholder against an insurer, but is instead regulatory in nature. Section 154.6 lists acts committed by an insurance company that constitute improper claims practice. Under the section, the State Director of Insurance is vested with the authority to charge a company with section 154.6 improper claims practove and serve the company with notice of a hearing date. If a company is found at the hearing to have engaged in improper claims practice, the Director can order the company to cease its practices and has discretion to suspend the company’s certificate of authority and/or impose civil penalty. Therefore, the court stated that AEI cannot personally seek damages from Travelers under 154.6. However, a private action is able, under Section 155, when there is an issue of liability of a company on a policy or policies of insurance or the amount of the loss payable or for unreasonable delay in settling a claim, and it appears to the court that such action or delay is vexatious and unreasonable. The court found that Travelers did not act vexatiously and in an unreasonable manner in regard to the 7150 claim, because a bona fide coverage dispute existed. This bona fide coverage dispute resulted in instant action. Therefore, AEI was not entitled to 155 penalties for the Link-Belt crane, because Travelers failed to affirm or deny liability within a reasonable time. However, approximately five weeks from the date the crane was damaged, Travelers informed AEI of its repair estimates and the amount it would pay under the policy. Therefore, the court could not conclude that the action by Travelers was vexatious and unreasonable. The record showed that Travelers responded in a reasonable time to AEI’s initial Link-Belt claim. It also responded accordingly when AEI disputed the amounts Travelers offered in the settlement of the claim. The record shows a bona fide coverage dispute existed. Therefore, Section 155 penalties are not warranted for Travelers’ handling of the Link-Belt claim.
The court held that: (1) actual cash value of damaged crane, rather than replacement cost, was appropriate method of value; (2) owner lacked private right of action under statute listing acts committed by an insurance company that constitute improper claims practices; (3) insurer did not act in a vexatious or unreasonable manner in handling claim regarding one crane; and (4) insurer did not act in a vexatious or unreasonable manner when responding to claim for second crane.
Area Erectors Inc. v. Travelers Property Casualty, 981 N.E.2d 1120 (Ill.App. 1 Dist. 2012).
