Fourth Circuit Upholds Insurer-Imposed Deadline For Property’s Repair Or Replacement
December, 2006
The Fourth Circuit, applying South Carolina law, held that a deadline imposed by the insurer requiring the insured to repair its fire damaged property within two and a half years after the date of the fire did not constitute an anticipatory breach, or an act contrary to the requirement of good faith and fair dealing. Collins Holding Corp., LP v. Wausau Underwriters Ins. Co., 2006 WL 3147559 (4th Cir. 2006).
Facts
Wausau insured several properties owned by the insured (“Collins”) against fire damage. On August 13, 2000, a fire destroyed one of these properties. Collins’ insurance policy gave it the option to recover the actual cash value of its property damage, or the cost to repair or replace the damaged property with like kind and quality, if such property is repaired or replaced. The insurance policy’s replacement cost coverage provision stated that Wausau would “not pay on a replacement 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.” (emphasis added)
Collins reportedly wanted to rebuild its fire damaged property; however, contrary to the policy’s provisions, it refused to begin the repair process until it reached an agreement with Wausau regarding the amount of coverage provided under the policy. (Notably, Wausau had once negotiated with Collins in this manner on a different insurance claim.) After nearly two years of negotiations on this issue, Wausau informed Collins that it must complete the repairs and present its replacement cost claim by February 6, 2003. Wausau also advised that Collins’ failure to complete its repairs by the February, 2003 deadline would result in a forfeiture of its replacement cost benefits. Collins did not comply. On February 18, 2003, Wausau advised Collins that because it had “failed to rebuild prior to the February 6 deadline, Wausau would ‘suspend all further adjustment activity and close [its] file.’”
Collins then filed suit against Wausau. The litigation proceeded to a jury trial. At the close of Collins’s evidence, Wausau moved for judgment as a matter of law. The district court granted Wausau’s motion, and Collins appealed.
Analysis
The Fourth Circuit considered two issues on appeal: (1) whether Wausau anticipatorily breached its insurance policy with Collins when it imposed the February, 2003 deadline regarding the property’s repair; and (2) whether Wausau violated the covenant of good faith and fair dealing when it refused to negotiate the repair costs prior to completion, even though it had conducted such negotiations on a different claim with Collins. The Fourth Circuit failed to see the validity in these arguments, and affirmed the district court’s judgment.
First, the Fourth Circuit stated that Collins’ own evidence did not support its argument of an anticipatory breach:
[t]he representative of Cely Construction, Collins’s witness, testified that the construction would take approximately four to four and a half months. And Collins stipulated at trial that it could afford to rebuild before being reimbursed. Thus, even if the insurance policy did not require Collins to rebuild within a reasonable time of its ‘loss’ in August 2000-a question we need not reach-Wausau’s April 2002 notification that Collins must rebuild within the next nine months, by February 6, 2003, provided Collins with more than sufficient time, even according to Collins’s own witness. Because the deadline was reasonable, Wausau’s February 18, 2003 letter was in keeping with the terms of the contract, not a repudiation of it.
Second, and again based on Collins’ own evidence, the Fourth Circuit rejected Collins’s argument that Wausau’s prior willingness to negotiate replacement cost coverage before completion of repairs precluded Wausau from imposing the deadline:
Collins’s own evidence demonstrates that Wausau notified Collins of the February 6, 2003 deadline on April 22, 2002-over nine months in advance of the deadline, and twenty months after the fire. According to Collins’s own witness this deadline provided it with more than the four or five months needed to rebuild, an expense Collins conceded it could afford to undertake without the insurance payments. Collins’s evidence also demonstrates that Wausau repeatedly and consistently reminded Collins of the February 6 deadline in numerous letters prior to that deadline. A reasonable trier of fact could draw only one conclusion from this evidence: that Wausau did not breach the implied covenant of good faith and fair dealing.
Learning Point:
While the insurance policy in Collins Holding outlines Wausau’s duties under the policy, the Fourth Circuit did not focus on the policy’s plain language requiring replacement “as soon as reasonably possible.” Instead, the court evaluated and approved of the claims handling procedures employed by Wausau based primarily on the factual evidence before it.
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