Time is Money. Unless You’re an Insurance Company

Benjamin Franklin

Benjamin Franklin may never have been President but he’s better known than most of them. Not least of all for his pithy quotes on a wide range of subjects:

  • On personal finance – “A penny saved is a penny earned.”
  • On education – “Tell me and I forget, teach me and I remember, involve me and I learn.”
  • On getting real – “In this world nothing can be said to be certain, except death and taxes.”
  • On guests – “Guests, like fish, begin to smell after three days.”
  • On lawyers – “A countryman between two lawyers is like a fish between two cats.”
  • On beer – “In wine there is wisdom, in beer there is freedom, in water there is bacteria.”

But if you were to pick one theme that seems to recur the most in Franklin’s quotes, it would be productivity:

  • “Time is money.”
  • “By failing to prepare, you are preparing to fail.”
  • “Never leave that till tomorrow which you can do today.”
  • “Early to bed and early to rise, makes a man happy, wealthy and wise.”

But, as the next case, Grebow v. Mercury Insurance Company, Case No. B261172, California Court of Appeals for the Second District (October 21, 2015), illustrates, sometimes the most efficient way of doing things may not necessarily be the most financially prudent way of doing things.

Grebow v. Mercury Insurance Company

Imagine this . . . As you’re coming back into your house after relaxing on your deck you say, “honey, is it just me, or does our house seem to be tilting?” Your wife comes out, looks at the house, and says, “gee honey, I think you’re right. Our house does seem to be tilting. No wonder why my knitting balls keep falling off the coffee table.”

So you do what any reasonable person would do and you immediately call a contractor.

The contractor comes out, takes a look at your house, and says, “yup, your house is tilting.” Apparently, steel beams and poles supporting the second floor of your house are decaying.

But, being the prudent person you are, you call an engineer for a second opinion.

The engineer comes out, takes a look at your house, and says, “yup, your house is tilting.” Apparently, because of the severity of the  corrosion, the second floor of your house is in danger of collapsing. Not only that, but it’s so bad, you’re told not to use the upper floor of your house until the repair work is done.

Which kind of bites since your wife stores all of her knitting supplies upstairs.

So, you enter into a construction contract to have the steel beams and poles replaced, which you’ve negotiated for the very reasonable sum of $91,000, and within a month of first noticing your house beginning to tilt like the leaning tower of Pisa tender a claim with your homeowners insurance carrier.

Only to have it denied.

What! Isn’t this what insurance is for? The second floor of your house, along with all of your wife’s [expletive] knitting supplies, was going down! So you sue. And, surprise, the trial court sides with your homeowners insurance carrier because while your [expletive] was about to go down, it hadn’t gone down yet.

The Court of Appeals Decision

On appeal, the California Court of Appeals for Second District reviewed the insurance policy. The insurance policy covered “direct physical loss to covered property caused by collapse of a building or any part of a building caused only by one or more of the following perils: . . . b. hidden decay.”

The term “collapse,” explained the Court of Appeals, has been grappled with by the courts and has resulted in two lines of thought:

One line of case law holds that “collapse ” requires a complete falling down or flattening to rubble before the loss becomes insured. The other lines of cases (which has been termed the “modern” and “majority” view) holds that the building need not entirely or even partially fall down in order for damages to rise to the level of a collapse. Rather, the property is deemed to have collapsed if the damage materially impairs the basic structure or substantial integrity of the building.

Here, however, Mercury Insurance’s policy defined “collapse” as a “sudden and complete breaking down or falling in or crumbling into pieces or into a heap of rubble or into a flattened mass” and does not include “settling, cracking, shrinking, bulging, expansion, sagging or bowing, nor a substantial impairment of the structural integrity of a structure or building, nor a condition of imminent danger of collapse of a structure or building” (emphasis added). And, where, as here, explicit language narrows the scope of coverage explained the Court, “courts have found such provisions to be unambiguous and enforceable to exclude damage to a building unless and until some part of the building has actually fallen down or been reduced to rubble.”

So, in short, if you wanted to be covered by your insurance policy you should have let the [expletive] come crashing down and have your [expletive] insurance company cough up a whole lot more than $91,000.

So much for being a good citizen.

Conclusion

Reading Grebow is almost enough to make you want to start a revolution. But before you go out and tar and feather an insurance company there’s a few different perspectives you may want to consider:

  1. The most obvious is that Grebow punishes an insured for doing what would ordinarily be considered both prudent and cost-effective. You mean the homeowner should have just let his house “crumble into pieces,” “into a heap of rubble,” or became a “flattened mass” and then tender it to the insurance company? Tell you what, let me throw some of my wife’s priceless knitted sweaters up there in the meantime;
  2. It’s all a matter of contract. And once courts start rewriting agreements between parties,  rather than letting the parties negotiate or walk away on their own, all sorts of unintended mischief may result;  and
  3. A very interesting perspective from Justice Richard Mosk, who wrote the Grebow opinion, that “[t]o read the policy as the Grebows do would mean that virtually all maintenance calculated to prevent ultimately an insurable loss would have to be reimbursed by the insurer.” And that would be a very slippery slope indeed.

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