- Where there is a covered total loss by fire under a fire insurance policy, may an insurer reduce the policy’s limit of coverage for the insured premises by fifteen percent (15%) pursuant to a “vacancy” provision in the policy?
- Does a fire insurance policy that includes a “pollutant clean up and removal” provision that provides that the insurer will pay the insured’s expense to extract pollutants from land or water, provide coverage in excess of the “debris removal” coverage afforded by the policy for the removal of asbestos contained in a fire-damaged or destroyed structure?
In the late 1990s, the Plaintiffs, Dr. and Mrs. Mohammed Ashraf, bought a building in Fairmont, West Virginia with the intent of opening the property as an assisted living facility (“ALF”). The Ashrafs opened the ALF in the early 2000s and closed it in 2006. Thereafter, the building remained vacant. At all times, the property was insured through a policy of insurance issued by the Defendants, State Auto Property & Casualty Insurance Company through Wells Fargo Insurance Services of West Virginia, Inc.
In 2009, the Ashraf’s building was the subject of a break-in where vandals caused damage to the structure. The building was insured at the time, and the Ashrafs presented a claim to State Auto. State Auto denied the claim, because the property was vacant at the time of the break in and vandalism claims were specifically excluded by the “vacancy” provisions of the policy.
Thereafter, State Auto continued to insure the property, and the Ashrafs continued to faithfully pay their insurance premiums on the policy. At no time did State Auto threaten to rescind or refuse to re-issue the subject policy, which included fire insurance, due to any alleged vacancy. In fact, State Auto raised the premiums on the coverage and increased the amount of coverage on the structure each year following the vandalism.
On October 29, 2012, the building was rendered a total loss by fire. The Ashrafs presented a fire-loss claim under their policy to State Auto. On November 15, 2012, State Auto sent a reservation of rights letter to the Ashrafs and advised them that the fire was incendiary in nature and that, because the property was alleged to be vacant at the time of the fire, the Ashraf’s policy was subject to cancellation or a 15% reduction of the policy limit. Then, on November 21, 2012, State Auto cancelled the Ashraf’s policy. There was never any evidence produced that the Ashraf’s had anything at all to do with the fire.
On December 21, 2012, the City of Fairmont communicated with State Auto regarding the need for the demolition of the fire-damaged building and advised that it was becoming a public nuisance. The City then sent State Auto a follow-up written notice of its lien against the policy proceeds for debris removal. State Auto continued to refuse to pay any benefits under the policy.
On February 15, 2013, the City issued a “Raze and Repair” Order to the Ashrafs. Dr. Ashraf retained an attorney and reiterated a policy limits demand to State Auto on or around April 19, 2013. On May 17, 2013, State Auto provided written notice to the Ashrafs’ counsel rejecting the demand.
In August of 2013, the City began threatening the Ashrafs with criminal prosecution for violating city ordinances by failing to demolish the structure. However, the Ashrafs’ hands were tied. At that time, State Auto continued to investigate the fire as incendiary in origin and refused to release the building, as it was evidence in its ongoing investigation, so the Ashrafs could arrange for its demolition. State Auto also continued to refuse to pay any benefits on the claim. On August 23, 2013, Dr. Ashraf sent written notice to State Auto that he was subject to criminal prosecution if the building was not demolished by the close of business on August 30, 2013. State Auto continued to refuse to tender any funds towards demolition. Consequently, the Ashrafs were criminally charged at the end of August, 2013.
On September 3, 2013, State Auto finally tendered benefits in the amount of $25,000. On January 6, 2014, The Ashrafs renewed their policy limits demand against State Auto. On January 28, 2014 State Auto advised that it would pay the Ashrafs’ policy limits demand subject to a fifteen percent (15%) reduction under the “vacancy” provision of the policy. It also advised that it would advance $10,000 for demolition and debris removal.
On January 30, 2014, the Ashrafs objected to the reduction of the policy limits insofar as it violated the valued policy statute at W.Va. Code § 33-17-9. The Ashrafs also objected based on a policy endorsement expressly stating that the policy limit would be paid in case of a total loss by fire. On February 7, 2014, State Auto reiterated its decision to reduce the coverage by 15%.
On March 3, 2014, State Auto sent the $10,000 for demolition and debris removal. However, the Ashrafs incurred nearly $30,000 for demolition and debris removal, plus nearly $5,000 for investigation of the possibility of asbestos abatement. State Auto refused to advance any additional benefits to cover the excess costs of that work.
Having reached a final impasse, the Ashrafs instituted litigation against State Auto and Wells Fargo on August 28, 2014.
With respect to Certified Question No. 1, the Ashrafs take the position that, in answering “Yes” to that question, the circuit court committed multiple errors. The Ashrafs argue that the court should have concluded that the plain language of the “valued policy” statute voided the application of the policy’s “vacancy” provision. Instead, the court erred by engaging in a statutory construction analysis of the unambiguous “valued policy” statute and then misconstruing it, finding it applied only to disputes over valuation. The Ashrafs argue that the circuit court should have recognized that the plain terms of the “valued policy” statute provide that a fire insurer is strictly liable to an insured, as a liquidated damage, for the stated value of a policy’s real property coverage where there is a total loss. The Ashrafs also argue that the court failed to recognize that the plain terms of the “West Virginia Changes” endorsement nullified the “vacancy” provision. Finally, the Ashcrafts argue that the court committed an egregious factual error by concluding that the Ashrafs failed to report the break-in and vandalism to State Auto, notwithstanding State Auto’s concession that the Ashrafs had reported the incident and denied their claim due to the vacancy.
With respect to Certified Question No. 2, the Ashrafs take the position that, in answering “No” to that question, the circuit court also erred. The Ashrafs contend that the “Pollutant Clean Up and Removal” coverage applies to “land or water at the described premises,” which includes the subject building. The Ashrafs argue that the court failed to acknowledge that the phrase is inclusive rather than exclusive of the insured structure, and, to the extent that phrase is subject to multiple reasonable interpretations, the one most favorable to the Ashcrafts was required to be adopted since State Auto wrote the policy.
On Question No. 1, State Auto takes the position that the “vacancy” provision is enforceable based on the Supreme Court of Appeals’ prior precedent upholding other conditions or exclusions, namely, the intentional acts exclusion, that are meant to suspend, rescind or otherwise limit coverage, even for a total loss. State Auto argues that the caselaw the Ashrafs rely on do not hold that the vacancy provision conflicts with the “valued policy” statute and relate only to disputes over the amount of certain losses. State Auto argues that the vacancy provision is different insofar as it does not relate to the amount of the loss, but instead involves the suspension, rescission or limitation on coverage when certain conditions occur that materially increase the risk. Accordingly, State Auto argues that the circuit court was correct in answering “Yes” to Certified Question No. 1.
On Question No. 2, State Auto takes the position that a plain reading of the policy leads to the conclusion that the Ashrafs are not entitled to the Pollutant Cleanup and Removal coverage for asbestos, as the policy language clearly targets pollutants that have contaminated the natural surroundings of the insured’s property and, therefore, only cleanup costs of ground or water are available under that coverage.
Wells Fargo took no position with respect to either certified question.
The instant case highlights the interplay between West Virginia’s insurance statutes and contract terms that were (presumably) negotiated between parties; therefore, it could have important implications in determining which provisions control when conflicts arise in these areas. This case could also further add to the body of existing caselaw regarding contract and insurance policy interpretation—specifically, the way policy terms can be deemed ambiguous (or not) and the effect of such decisions on insurance policies in West Virginia.