INSURANCE LAW REVIEW

Ambiguity in Full Value Fire Policy Endorsement Offsets Listed Limit of Liability.

Ambiguity, the ever-present threat to the drafter of insurance policies, struck again in a suit relating to the extent of damages due an insured on a building fire claim.

Hartford Fire Insurance Company brought this declaratory judgment action against its insured, Siegfried Press, Inc. asking that it be relieved of liability in connection with a fire on January 28, 1991. In response to the company's suit, Siegfried Press counter-claimed, charging breach of contract by the insurer.

Hartford had issued the policy initially in March 1987 and renewed it for three succeeding years. The initial policy and all of the succeeding renewals, contained a "full value endorsement" on the building which overrode the limits of liability with respect to the rebuilding of the premises in the event it was damaged by fire. The limit of liability of the policy was $118,000. One of the provisions of the endorsement stated: "2. The company shall not be liable under this endorsement for any loss unless and until the property is actually repaired or replaced by the insured with due diligence and dispatch." Provision 4, of the endorsement, on the other hand, stated: "Should the insured elect not to repair or replace the property after a fire, coverage under this policy shall be limited to the actual cash value of the property at the time of the loss."

To begin with, Hartford asked that the policy be reformed because it had discovered that the insured, Siegfried Press, had never asked for the endorsement. It sought deletion of the endorsement from the fire policy.

In addition, Hartford sought to prove at trial that the insured was guilty of fraudulent misrepresentation and arson. The jury rejected the Hartford's arguments and returned a verdict for $431,400, consisting of $350,000, the actual cash value of the building, and $82,000 for the value of the personal property. The jury award, entered November 22, 1994 in Supreme Court, Orange County, before Judge Owen, in effect rejected the Hartford arguments on fraudulent misrepresentation and arson. The trial judge had instructed the jury that the "full value endorsement" was, in fact a part of the policy.

Hartford appealed the verdict to the Appellate Division, Second Department, which, in a unanimous finding June 10, affirmed the jury verdict and assessed costs against the insurance company. The Appellate Division said that Hartford had failed to meet the "heavy burden necessary to show that the 'full value endorsement' should be removed from the insurance policy because it was added by mutual mistake." The court held that Hartford's contention that inclusion of the endorsement constituted a mutual mistake inasmuch as the insured did not specifically request such an endorsement be included was "meritless." An added premium had been charged and paid for by the insured. The trial court had also concluded that inclusion of the endorsement was a unilateral mistake by the company and that the evidence did not show that the insured had erred.

The appellate court also looked at the language of the two provisions of the endorsement and found ambiguity. While the court's brief decision does not spell out the ambiguity, it was clear that on the one hand provision 2 calls for waiving of the endorsement if the insured fails to repair or replace and, on the other hand, provision 4 states that if the insured elects not to repair or replace, coverage shall be limited to "actual cash value of the property at the time of the loss." The endorsement language makes no reference to the policy limits as the measure of recovery. Hartford had argued that the insured was limited to the actual cash value but that this meant it was not to exceed the limits of liability contained on the declaration pages, which was $118,000. Counsel for the insured agreed that while actual cash value was the proper loss valuation, the "full value endorsement" entitled the insured to such value, irrespective of the policy limits.

The Appellate Divisor decisions saw the endorsement as ambiguous asserting that it must be construed against Hartford as the maker of the contract.

Siegfried Press, Inc., was represented by the New York firm of Weg & Myers, P.C., with Charles Martin Arnold and Joshua L. Malin of counsel. Hartford Insurance Company was represented by Bouck, Holloway, Kiernan and Casey of Albany, with Thomas J. O'Connor and Judith S. Karpen of counsel.