Impossibility to Comply: When an Insurance Company’s Conduct Frustrates the Insured’s Ability to Satisfy the Precondition

Property Damage attorneys will occasionally run into dispositive motions filed by Insurance Company attorneys looking to dismiss the lawsuit based on the following language from the policy’s loss settlement provision:

We will pay no more than the actual cash value of the damage until actual repair or replacement is complete

The insurance company will cite the above provision and argue that it owes no more than the actual cash value already paid because the insured did not repair or replace the property. In the instance where certain repairs have been completed, the carrier will argue that dismissal is warranted because the amount expended by the insured is not more than the amount of the actual cash value provided. A Defense to one of these motions is an estoppel argument where the insured argues that actions undertaken by the insurance company hindered his or her ability to comply with the provision.

I currently have a loss wherein the insured had covered damage to her basement caused by pipes bursting in winter. The insurance company covered the loss and issued an actual cash value payment. However, when the insured hired contractors to start performing the work, it was discovered that there was asbestos that lined the pipes in the ceiling and contained in the walls of the basement. The contractor advised the insured that he would not start work until the asbestos is abated.

The insured notified the carrier of the asbestos and an expert is sent to investigate. It is confirmed that there is asbestos, however the carrier refused to provide an actual cash value payment for the asbestos removal and covered it on a “paid when incurred” basis. Worse, discovery unveiled that the carrier’s own expert provided an estimate to abate the asbestos to the carrier, offered to perform the work, and the carrier did not act on the offer. It was determined that the asbestos removal would cost approximately $10,000.00. The insured could not front the money for the abatement and the claim eventually went to litigation.

The insurance carrier filed a Motion for Summary Judgment citing the same language quoted at the beginning of this blog. We defend on the basis that the actions of the carrier in failing to provide an actual cash payment to the insured for the abatement frustrated her ability to make the repairs. The trial court agreed with our argument and Denied the insurance carrier’s Motion, stating:

There is no reason offered as to why the insurer held back the amount it acknowledged it owed for asbestos abatement pending the undertaking of repairs by the insured and declined to authorize its own contractor to implement the abatement work based on its proposal for the same. The policy appears to afford coverage for the cost without limitation on the basis of “actual cash value.” The record reflects evidence that could cause the trier of fact to conclude that contractors engaged by the insured to perform repairs to the Plaintiff’s damaged basement were unable or unwilling to proceed to perform the repair work until a licensed professional removed the asbestos-contain materials from the area.

The record, examined in the light most favorable to the Plaintiff, could thus permit the trier of fact to find that the insured was prepared to proceed with repairs to satisfy the condition precedent in the policy to recovery of full replacement cost but was thwarted in her ability to do so by actions of [Defendant] in the handling of her claim. Under the court’s holding in Ward, there is a triable issue of fact as to whether the actions of the insurer rendered impossible her satisfaction of the condition requiring repair to the dwelling and, as a result, whether [Defendant’s] obligation to afford coverage to the Plaintiff is limited to actual cash value.

Although it is only a trial level opinion, the opinion expands on the oft-cited cases in these types of Motions such as Ward¹ and Ferguson.² Ward and Ferguson involve the courts finding impossibility where the carrier denied the entire loss and then argues that the claim should be limited to actual cash value at the time of trial. This opinion seems to expand impossibility to losses where the loss is covered but partially denied.
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1 Ward v. Merrimack Mut. Fire Ins. Co., 332 N.J. Super. 515 (App. Div. 2000).
2 Ferguson v. Lakeland Mut. Ins. Co., 408 Pa.Super.332 (Pa. Super. Ct. 1991).