Under the Policy the Debris Removal Limit did not go Beyond Coverage in Excess of Policy Limit

In Bona Fide Partnership v. Regent Ins. Co., Bona Fide Partnership owned a building that was insured by Regent Insurance Company. The limit of insurance on the building was $1,850,000. If the loss exceeded the limit of the policy, then the policy provided an additional amount for debris removal. At issue in the case is the correct amount of debris removal. On November 7, 2008, a commercial building owned by Bona Fide Partnership was damaged when a neighboring building caught on fire. On December 5, 2008, Bona Fide Partnership’s building was formally condemned. In a December 10, 2008, letter, Regent Insurance notified Bona Fide Partnership that the building had sustained fire damage to the extent that complete demolition was required. The letter further acknowledged that demolition bids were being obtained; and once bids were reviewed and an agreement was reached in regard to scope and cost, then demolition would proceed. Robinett Demolition submitted a successful bid and contracted with Bona Fide Partnership to demolish and remove the building for $246,180. It was agreed upon that the physical damage to Bona Fide Partnership’s property, not including the cost of debris removal, exceeded the policy limit. Regent Insurance paid the policy limit, plus $10,000, for demolition and debris removal. Bona Fide Partnership filed a declaratory judgment against Regent Insurance in which it sought.

The court addressed the question of whether the language of the policy required payment to Bona Fide Partnership of up to 25% of the amount paid by Regent Insurance for loss or damage to the covered property, plus $10,000 in additional coverage for the debris removal, because the loss exceeded the policy limit.

The court determined that the plain language of the policy shows the limits of the policy to be $1,850,000. The parties agree that the total loss of the building exceeds $1,850,000. Reading the policy as a whole shows an overall limit exists to cap Regent Insurance’s total amount of exposure. Here, the total loss exceeded policy limits so that 25% payment for debris removal is not available, because it would further exceed the insurance limit under the policy. Instead, Bona Fide Partnership is entitled to just the $10,000 for debris removal. The additional $10,000, when added to the physical loss, will result in payments in excess of the policy limit. However, the court held that the plain language of paragraph 4(a) in the policy expressly stated that if the policy limit is exceeded, then Regent Insurance will pay an additional $10,000. Therefore, the $10,000 was intended to be an exception to the “Limits of Insurance.” Paragraph 4 also provided the insured with an option to purchase an increased debris removal coverage limit with the following language: “if an increased limit of insurance is purchased, the above $10,000 limit of insurance is replaced by the Debris Removal Limit of Insurance shown in the Declarations.” The insured would have little incentive to purchase additional debris removal coverage if the policy language allowed the potential insured to receive coverage in excess of the policy limit.

The court held that, because the policy limit in this case was $1,850,000 and plaintiff’s loss exceeded that policy limit, defendants correctly paid the additional $10,000 for debris removal required by the policy.

Bona Fide Partnership v. Regent Ins. Co., 2013 WL 33376958 (Ill.App. 4 Dist.)). (This order was filed under Supreme Court Rule 23 and may not be cited as precedent by any party except in the limited circumstances allowed under Rule 23(e)(1)).