Second Circuit Affirms Dismissal of Proposed Class Action Over Reimbursement Practices for Property Damage
Property Coverage Update
United States Court of Appeals for the Second Circuit
In Woodhams v. Allstate Fire & Cas. Co., 2012 U.S. App. LEXIS 3 (2d Cir. N.Y. Jan. 3, 2012), the Second Circuit Court of Appeals affirmed the dismissal of a proposed class action against Allstate Fire and Casualty Company over its reimbursement practices for property damage. Specifically, the court ruled that Allstate's practices had not violated either New York law or the policy itself.
After fire damage to their home, plaintiffs Thomas D. Woodhams and Charlene Connors (the insureds) filed a claim with Allstate. Under the terms of the Allstate policy issued to the insureds, Allstate paid the insureds the actual cash value of their damaged property. The pertinent policy language stated as follows:
b) Actual Cash Value
If you [the insured] do not repair or replace the damaged, destroyed or stolen property, payment will be on an actual cash value basis. This means there may be deduction for depreciation. Payment will not exceed the limit of liability shown on the Policy Declarations for the coverage that applies to the damaged, destroyed or stolen property, regardless of the number of items involved in the loss.
You may make a claim for additional payment as described in paragraph c . . . if you repair or replace the damaged, destroyed or stolen covered property within 180 days of the actual cash value payment.
c) Building Structure Reimbursement
. . . [W]e will make additional payment to reimburse you for cost in excess of actual cash value if you repair, rebuild or replace damaged, destroyed or stolen covered property within 180 days of the actual cash value payment. This additional payment includes the reasonable and necessary expense for
treatment or removal and disposal of contaminants, toxins or pollutants as required to complete repair or replacement of that part of a building structure damaged by a covered loss.
However, after paying the actual cash value of the damaged property, Allstate denied the insureds' additional reimbursement for repairs because the repairs were not made within 180 days of the actual cash value payment. The insureds filed suit, alleging that (1) Allstate's policy is inconsistent with New York law, and (2) Allstate's denial of payments for repairs in excess of the actual cash value of the damaged property is inconsistent with the terms of the Allstate policy itself. The district court found that the insureds' claims failed as a matter of law. On appeal, the Second Circuit affirmed the dismissal of the insureds' complaint.
In affirming the district court, the Second Circuit rejected the insureds' claim that Allstate's policy failed to comply with New York law. Specifically, the insureds alleged the Allstate policy's requirement that repairs be completed within 180 days did not allow for "a reasonable time after such loss" to repair or replace their property, as required by N.Y. Ins. Law §3404(e). However, the court noted this argument ignores the fact that New York requires only that an insurer pay the "lesser amount" of the actual cash value of the property, the cost of repair or replacement, or an otherwise fixed limitation of liability amount. See Id. The court found that because Allstate paid insureds the actual cash value of their property at the time of loss, Allstate satisfied its statutory obligation to provide "no less favorable coverage" than that set forth in NY Ins. Law §3404.
Additionally, the court rejected the insureds' argument that Allstate's policy could reasonably be interpreted to mean that an insured need only commence or undertake repairs within 180 days of the actual cash value payment in order to receive the additional reimbursement for full repair costs, regardless of when those repairs are completed. The insureds based this argument on the failure to include the word "complete" in the following sentence: ". . .[W]e will make additional payment to reimburse you for cost in excess of actual cash value if you repair, rebuild or replace damaged, destroyed or stolen covered property within 180 days of the actual cash value payment."
The court dismissed this argument, noting that the insureds did not even allege that they undertook any repair, rebuilding or replacement of damaged property within 180 days of the actual cash value payment. The court went on to state, "However understandable these reasons for delay in the undertaking of repairs, [insureds] can point to no policy language obligating Allstate to reimburse for repairs not yet commenced –let alone completed—within the 180-day period."