Opinion Analysis


MOHAMMED ASHRAF, M.D. V. STATE AUTO PROPERTY AND CASUALTY INSURANCE COMPANY, ET AL.

Case Opinion Date Opinion Author Decision Vote
16-1042
04/26/2017 Justice Ketchum Certified Question Answered Unanimous

Facts

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 and the Ashrafs presented a fire-loss claim under their policy. 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 Ashrafs’ policy was subject to cancellation or a 15% reduction of the policy limit. Then, on November 21, 2012, State Auto cancelled the Ashrafs’ policy. There was never any evidence produced that the Ashrafs 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 subject insured 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 the same violated the valued policy statute at W.Va. Code § 33-17-9. The Ashrafs also objected based on a policy endorsement that expressly stated 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.

Issues

  1. 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?
  1. Does a fire insurance policy that includes a “pollutant clean up and removal” provision stating 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?

Analysis

Certified Question No. 1

With respect to Certified Question No. 1, the Court first took notice that it was undisputed that the State Auto policy in question was a valued policy under W.Va. Code § 33-17-9 and that the policy included the West Virginia Changes endorsement. The plaintiff took the position that the statute, and not the insurance policy, controlled such that the 15% reduction could not be imposed. However, the Court also took note of the fact that the policy at issue contained two vacancy provisions, one which allowed State Auto to deny coverage outright and another which reduced benefits by 15% where the insured structure remained vacant in excess of 60 days. It was undipstued that the building at issue had remained vacant for nearly 6 years.

The Court analyzed the history and intent of the valued policy statute, recognizing that the purpose of the statue was to prevent insurance companies from overvaluing structures, and collecting inflated premiums as a result, by mandating that an insurance company pay the entire amount of the policy benfits for a total loss, regardless of any lesser valuation of an insured property. Nevertheless, the Court was persuaded by the fact that the policy language authorized a complete denial of liablity for this loss, but also contained the 15% vacancy provision in another section of the policy. The Court found the vacancy reduction provision to be favorable to the insured plaintiff inasmuch as State Auto could have justifiably denied coverage outright. The Court also took note that the policy did not subject the parties to a factual dispute over valuation, a dispute that was intended to be avoided by the adoption of the valued policy statute.  The Court took further notice of the fact that the 15% reduction remains the same whether the vacancy is just over 60 consecutive days or, as here, where the building remains vacant for a number of years.

The Court took note that the extrajurisdictional cases cited by the plaintiff–stating the valued policy statute takes priority–were not controlling, and that the vacancy reduction provision did not offend the valued policy statute or the West Virginia Changes Endorsement inasmuch as it did not create any valuation disputes.  The Court charactrized the 15% reduction as an anticipatory limitation regarding the risk to a structure from extended vacancy, and held the provision enforceable where an insured building has been vacant for more than 60 days. Accordingly, the Court upheld the circuit court’s enforcement of that provision.

Certified Question No. 2

With respect to Certified Question No. 2, the Court recognized that the policy language provided separate coverages for debris removal and pollutant removal. The Court found that the policy language was plainly clear that to obtain pollutant clean up and removal coverage, there must have been the discharge, dispersal, seepage, migration, release or escape of the pollutant into the land or water. In analyzing the pollutant removal provision of the policy, the Court found tthat the trial court’s reliance on the decision in Ruffin Road Venture Lot IV v. Travelers Property Casualty Co. of Am., 2011 WL 2463291 (S.D. Cal. June 20, 2011) was proper. The Court took note of the fact that the policy provision in Ruffin was similar to the instant policy provision insofar as it required the insurer to pay the necessary and reasonable expense to “extract ‘pollutants’ from land or water” at a described premises if the discharge of pollutants resulted from a “specified cause of loss.”

Ruffin involved a damaged air conditioning system from a burst pipe in which mud and debris circulated through the system. In concluding that the pollutant removal provision of the policy at issue did not apply, the Ruffin court held that the claim failed under the provision’s “land or water” component. The Court reasoned that the policy provision targeted pollutants that had contaminated the natural surroundings of the insured property and found a self-contained air conditioning system to lie outside the coverage afforded under that provision. The Court analogized the facts in Ruffin to the Ashrafs’ circumstances, insofar as the asbestos at issue was wholly confined to the insured property itself. Finding nothing in the record that showed that land or water, in the context of the policy provision, were affected by the asbestos found in this case, the Court held that the circuit court’s reliance on Ruffin was warranted and that its answer to Certified Question No. 2 was correct.

Commentary

This decision buttresses West Virginia’s long-standing policy to enforce provisions of an insurance contract where the same do not conflict with West Virginia’s public policy or West Virginia law. Absent any evidence to demonstrate that the policy provisions at issue undercut West Virginia public policy on valuation, this decision signals a clear intent to enforce insurance vacancy provisions that reduce benefits by 15%. Similarly, absent evidence of some land or water contamination, this decision declines to extend pollutant removal to asbestos abatement. While the Ashraf decision does not foreclose the possibility of a different result under different circumstances, it sends a clear message that vacancy and pollutant removal provisions may be enforced as drafted.

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