Insured Obligated to Set Policy Limits

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Mark and Michelle Callahan sued their insurer and its agent, seeking to recover damages after their home was destroyed in a fire. The district court granted summary judgment in favor of the insurer and its agent and the Callahans appealed.

In Mark and Michelle Callahan v. Jeb Brant, an individual, and Shelter Mutual Insurance Company, 314 Neb. 219, No. S-21-1006, Supreme Court of Nebraska (May 12, 2023) the Supreme Court concluded the valued policy statute established the value of the property at the time of a total loss.

FACTUAL BACKGROUND

In 2011, the Callahans purchased a Shelter Mutual Insurance Company (Shelter) homeowners insurance policy through a licensed insurance producer, Jeb Brant. Before the policy was issued, Brant used a reconstruction cost calculator tool to estimate the cost of rebuilding the Callahans’ home, using information obtained from the Callahans and from the Clay County assessor’s website. Brant prepared a report that estimated reconstruction costs at $250,481.

In May 2019, the parties agree the Callahans’ home was totally destroyed by an electrical fire. The Callahans submitted a claim on the policy with Brant’s assistance, and it is undisputed that Shelter subsequently paid the Callahans all amounts due and owing under the policy. The Callahans allege that when they subsequently obtained a quote for the cost of rebuilding their home, they learned “the cost to rebuild was substantially higher than the amount of insurance coverage.”

The Callahans sued Shelter and Brant. They alleged that Brant negligently advised them on the estimated replacement value of their home and negligently misrepresented the adequacy of their policy limits in the event of a total loss.

The declarations page of the policy states the Callahans’ home was insured in the amount of $267,400, and the policy contained a “Valued Policy” provision. Shelter and Brant generally relied on the language of the policy, as well as on Nebraska case law regarding the duty of insureds and insurance agents, to argue that it was the Callahans’ duty to know the value of the property they were insuring and to request the amount of insurance coverage they desired. Shelter and Brant argued that the policy limit on the home was unambiguously stated in the policy and represented the full measure of the Callahans’ damages in the event of a total loss.

The district court granted summary judgment in favor of Shelter and Brant.

ANALYSIS

Nebraska law on this issue is well settled. When an insured asks an insurance agent to procure insurance, it is the duty of the insured to advise the insurance agent as to the desired insurance, including the limits of the policy to be issued. An insurance agent has no duty to anticipate what coverage an insured should have.

The Callahans conceded they never asked Brant to procure coverage in a higher amount on their home. They specifically argued they “would have increased their policy limits if Brant had advised them that they needed more coverage to replace their home in the event of a total loss.”

Nebraska’s valued policy statute conclusively established the true value of the Callahans’ loss in the event the property is wholly destroyed, and it precludes them from offering evidence that the true value was something other than the amount for which the home was insured.

Nebraska’s Valued Policy Statute

Nebraska’s valued policy statute is currently codified at Neb. Rev. Stat. § 44-501.02 (Reissue 2021). The valued policy statute conclusively fixes the true value of insured property at the valuation written in the policy, and when there is a total loss, that sum is the measure of recovery.

The valued policy statute is required to be part of every fire policy issued in this state, and the statutory language was expressly incorporated into the Shelter policy issued to the Callahans.

Neither the language of the valued policy statute, nor the public policy objectives underpinning that statute, provide a principled basis to restrict application of the conclusive determination of true value only to circumstances when an insurer seeks to pay less than the policy limits because of a misrepresentation, and not to circumstances when an insured seeks to recover more than the policy limits because of a misrepresentation. Under either scenario, after a total loss, the valued policy statute conclusively fixes the true value of the insured property at the amount stated in the policy.

The Supreme Court concluded that the “valued policy statute applies to the Callahans’ misrepresentation claim against Shelter and Brant, and it conclusively establishes that the true value of the Callahans’ home is $267,400-the amount for which it was insured. Moreover, it precludes the Callahans from offering evidence that the true value of their home was something other than the amount for which it was insured. And without such evidence, the Callahans cannot prevail on their negligence or negligent misrepresentation claims.”

Nebraska’s valued policy statute conclusively determines that the true value of the insured property is the amount written in the policy. The district court did not err in granting summary judgment in favor of Shelter and Brant, and the judgment was affirmed.

Setting a replacement value of a home for the purposes of homeowners insurance is – much to the surprise of those insured – the obligation of the person seeking insurance not the insurer or the insurance agent. The Nebraska valued property statute was designed to protect insurers and agents against the type of claim brought by the Callahans’. Every person insured can take their chances and rely on the estimates prepared by the agent or seek the advice of a professional fire reconstruction contractor to provide an estimate. With inflation most estimates made last year are out of date. Be careful.

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Barry Zalma, Esq., CFE, is available at http://www.zalma.com and zalma@zalma.com

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