BRADFORD, Judge.
Appellants-Plaintiffs Jerry and Becky French and Appellee-Defendant State Farm Fire & Casualty Company both appeal from the denial of their motions for summary judgment. State Farm argues that its offer to pay for another manufactured home after the Frenches' burned fulfilled its obligation under a homeowners' policy to pay the "reasonable and necessary cost" of replacing the Frenches' home with one of "similar construction." State Farm also argues that it is entitled to rescind the policy because Jerry failed to disclose both the purchase price of the original home and that it was a manufactured home. The Frenches assert that their stick-built home constitutes "similar construction" under the policy and that they are entitled to reimbursement up to the policy limits. The Frenches also assert that State Farm is not entitled to rescind the policy because its insurance agent failed to ask about the purchase price of their original home. Additionally, the Frenches assert that they are entitled to attorneys' fees and prejudgment interest. We affirm in part, reverse in part, and remand with instructions.
Many of the relevant facts are undisputed. Because both parties are appealing from the trial court's denial of their respective motions for summary judgment, however, we will mention any factual disputes where appropriate. On January 11, 2002, Jerry French entered into a purchase agreement with Delaware County Mobile Home Sales to purchase a manufactured home for $76,950.00. Jerry contacted Jane Hodson, an independent insurance agent, about arranging insurance on the home.
Jerry and Hodson met a few days later, and Hodson asked him at least thirty-seven questions about his new home, the answers to which she entered into the Insurance-to-Value calculator ("the IV calculator"). During the IV calculator process, it is undisputed that Hodson did not ask Jerry if the home he wished to insure was a manufactured home or how much the home cost and that Jerry truthfully answered all of the questions put to him. According to Jerry, he told Hodson that the home was a manufactured home. According to Hodson, Jerry never told her that the home was a manufactured home,
Jerry signed the policy application, which stated that he was "responsible for selecting the appropriate amount of coverage[.]" Appellant's App. p. 366. On July 9, 2002, State Farm issued a homeowners' policy with dwelling coverage limits of $173,200 and an increased dwelling limit endorsement of $34,640, which provided in part that State Farm would "pay up to the applicable limit of liability ... the reasonable and necessary cost to repair or replace with similar construction and for the same use on the premises ... the damaged part of the property." Appellant's App. p. 187. On February 12, 2003, the Frenches' home was substantially destroyed by a fire, the cause of which has never been determined.
The day after the fire, a State Farm adjuster went to the site and learned that the Frenches' home was a manufactured home. The adjuster told the Frenches that they could use an amount up to the policy limits to rebuild their home and sent them a letter stating that they could choose a contractor to perform the repairs. The Frenches were reluctant to purchase another manufactured home and expressed their desire to construct a "stick-built" home on the existing foundation. On March 14, 2003, State Farm offered to pay the Frenches the cost of replacing their manufactured home with the same model, which totaled $82,483.50. The Frenches accepted this amount but reserved the right to seek additional coverage under the policy. The Frenches' stick-built home cost over $180,000.
The Frenches sued State Farm in United States District Court for breach of insurance policy and Hodson for negligent failure to advise and to procure insurance. On November 29, 2004, the case was transferred to Delaware Circuit Court. All parties filed motions for summary judgment. On November 1, 2006, the trial court denied the Frenches' and State Farm's motions against each other and granted summary judgment for Hodson, which this Court affirmed in March 2008. The Frenches and State Farm renewed their motions for summary judgment, both of which the trial court again denied on March 2, 2010. On March 31, 2010, the Frenches moved to certify an interlocutory appeal, which motion the trial court granted on April 12, 2010. On June 22, 2010, this court accepted jurisdiction.
When reviewing the grant or denial of a summary judgment motion, we apply the same standard as the trial court. Merchs. Nat'l Bank v. Simrell's Sports Bar & Grill, Inc., 741 N.E.2d 383, 386 (Ind.Ct. App.2000). Summary judgment is appropriate only where the evidence shows there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Id.; Ind. Trial Rule 56(C). All facts and reasonable inferences drawn from those facts are construed in favor of the nonmoving party. Id. To prevail on a motion for summary judgment, a party must demonstrate that the undisputed material facts negate at least one element of the other party's claim. Id. Once the moving party has met this burden with a prima facie showing, the burden shifts to the nonmoving party to establish that a genuine issue does in fact exist. Id.
State Farm argues that its offer to pay for another manufactured home after
Wright v. Am. States Ins. Co., 765 N.E.2d 690, 692-93 (Ind.Ct.App.2002) (citations omitted).
Plumlee v. Monroe Guar. Ins. Co., 655 N.E.2d 350, 354 (Ind.Ct.App.1995), trans. denied. As a general rule, "[w]here provisions limiting coverage are not clearly and plainly expressed, the policy will be construed most favorably to the insured, to further the policy's basic purpose of indemnity." Meridian Mut. Ins. Co. v. Auto-Owners Ins. Co., 698 N.E.2d 770, 773 (Ind.1998).
As previously mentioned, the policy provided in part that, in the event of a loss, State Farm would "pay up to the applicable limit of liability ... the reasonable and necessary cost to repair or replace with similar construction and for the same use on the premises ... the damaged part of the property." Appellant's App. p. 187. The resolution of this issue requires investigating the meanings of the phrases "similar construction" and "reasonable and necessary cost." The Frenches argue mainly that their new stick-built home is of "similar construction" to the old one. State Farm argues that the new home is not of "similar construction" and that, even if it were, the cost to build it was not "reasonable and necessary."
The Frenches point to the many similarities between their new stick-built home and their burned manufactured home, arguing that the similarities in size, layout, building materials used, etc., render the new home of "similar construction" to the old. The term "similar construction" is not defined in the policy, but "similar" may be defined as "having characteristics in common" or "very much alike[.]" WEBSTER'S THIRD NEW INTERNATIONAL DICTIONARY 2120 (Phillip Babcock Gove et al. eds., G. & C. Merriam Company 1964). Construction may be defined as "the form or manner in which something has been put together[.]" Id. at 489.
We conclude that the phrase "similar construction" is ambiguous. The Frenches focus on similarities in size, materials, and layout, while State Farm focuses on the facts that a manufactured home is built in a factory, to different code requirements, and allegedly has a relatively short estimated useful life. Both parties' views are correct, as far as their arguments go, but ultimately incomplete. It is apparent that "construction" is a broad concept that encompasses myriad considerations, including, but not limited to, building techniques, building materials (including the quality of those materials), size, layout, craftsmanship, design, and useful life, among others. We do not wish the above to be read as an exhaustive list of factors to be considered in such cases. We wish merely to emphasize that such determinations will be fact-sensitive, with the above factors (or others) being more important, less important, or irrelevant, depending on the particular facts of the case.
State Farm argues that, even if the new home is of "similar construction" to the old, the cost to build it was not "reasonable and necessary" under the terms of the policy, with their argument regarding this language focusing on "necessary." State Farm argues essentially that only the absolute minimum cost needed to replace the Frenches' home is a "necessary" cost under the policy. "Necessary" may be defined as "whatever is essential for some purpose[.]" Id. at 1510. While we might be inclined to agree that State Farm would only be obligated to pay the bare minimum replacement cost if the policy had specified "necessary cost," it did not; State Farm's argument fails to take into account that the cost must also be "reasonable."
The Frenches contend in the alternative that State Farm is estopped from denying coverage because undisputed designated evidence establishes that it made misrepresentations to them which induced them to purchase coverage that did not cover the disputed risk. "Indiana adheres to the general rule that the doctrine of estoppel is not available to create or extend the scope of coverage of an insurance contract." Emp'rs Ins. of Wausau v. Recticel Foam Corp., 716 N.E.2d 1015, 1028 (Ind.Ct.App.1999). "The rationale for the rule is that an insurance company should not be forced to pay the loss for which it has not charged a premium." Id. One exception to this general rule, however, is made "when an insurer misrepresents the extent of coverage to an insured, thereby inducing the insured to purchase coverage which does not in fact cover the disputed risk." Id. For example, the Indiana Supreme Court has applied this exception to estop an insurer from denying coverage pursuant to a vacancy provision of an insurance contract where the insurer knew the insured's building was vacant at the time the coverage was purchased. See Huff v. Travelers Indem. Co., 266 Ind. 414, 426-27, 363 N.E.2d 985, 992 (1977).
State Farm contends that the coverage-by-estoppel exception does not apply in this case, as there is no dispute that coverage exists—only a dispute concerning the amount. We agree. State Farm has never denied coverage for the Frenches' fire loss; it only disputes that it is obligated to reimburse them for a new stick-built home. In other words, we do not have the required "disputed risk," only a disputed amount. See Emp'rs Ins. of Wausau, 716 N.E.2d at 1028. We remand with instructions to enter summary judgment in favor of State Farm on the Frenches' coverage-by-estoppel claim.
State Farm contends that designated evidence could support a finding that it is entitled to (1) reformation of the policy based on a mutual mistake of fact and (2) rescission of the policy based on concealment of material facts by the Frenches.
Am. United Life Ins. Co. v. Rest. Hospitality Ass'n of Ind., 898 N.E.2d 419, 425-26 (Ind.Ct.App.2008). The designated evidence does not generate a genuine issue of fact regarding a mutual mistake of fact. Although there is evidence that Hodson and State Farm were mistaken regarding the true value or nature of the manufactured home, there is no evidence that the Frenches were. We remand with instructions to enter summary judgment in favor of the Frenches on this question.
State Farm contends that it is entitled to trial on the question of whether it may rescind the insurance contract entirely based on the Frenches' concealment of the purchase price of the manufactured home or the fact that it was manufactured home. As an initial matter, the Frenches contend that State Farm cannot rescind the contract under any circumstances because it has failed to make a tender of premiums.
Am. Std. Ins. Co. v. Durham, 403 N.E.2d 879, 881 (Ind.Ct.App.1980). We conclude that State Farm's failure to make a tender of premiums will not act as a bar to its rescission claim. The designated evidence indicates that State Farm has paid the Frenches a total of $261,155.01 related to the loss. The designated evidence also indicates that the Frenches' yearly homeowners' insurance premium was $438.00, of which they had apparently only paid one annual payment at the time of the fire. State Farm has already paid out far more than the premiums paid, so its failure to make a tender of them does not bar its rescission claim.
As a general rule,
Watson v. Golden Rule Ins. Co., 564 N.E.2d 302, 304 (Ind.Ct.App.1990). "It is essential for recovery that the insurer must have been deceived by the misrepresentations and he must have acted in reliance upon them." State Farm Mut. Auto. Ins. Co. v. Price, 181 Ind.App. 258, 260, 396 N.E.2d 134, 136 (Ind.Ct.App.1979).
As previously mentioned, Hodson testified that Jerry told her that the home was "under construction[,]" from which she testified that she inferred that it was of stick-built construction. Appellant's App. p. 338. Even assuming, as we must, that Jerry made the above statement, we conclude that it does not rise to the level of a potential misrepresentation regarding the nature of his home. We find it most significant that Hodson's deposition testimony does not indicate that Jerry told her the home was under construction at any particular location, much less on site. Manufactured homes must be constructed, after all, and Jerry's alleged statement, without mention of a location, is just as consistent with a manufactured home as with a stick-built one.
At most, then, the situation was one of concealment or failure to disclose the value or true nature of the home. There are, of course, sins of omission as well as of commission, although no Indiana case has squarely addressed the question of whether failure to disclose a material fact leads to the same result as a misrepresentation. Several foreign cases have addressed the question of whether failure to disclose information regarding the value of insured property operates to relieve the insurer of liability, and, at least when limited to cases involving real estate, the cases uniformly hold that concealment or failure to disclose true value will not allow rescission on that basis.
In Gamel v. Continental Ins. Co., 463 S.W.2d 590 (Mo.Ct.App.1971), where an insured purchased a one-family dwelling for $800 but insured it in the amount of $10,000, the court held that the insurer could not void the policy on the grounds of fraud with regard to the value of the property. Id. at 595. In so doing, the court observed that
Id.
In Farm Bureau Insurance Co. v. Parks, 266 Ark. 454, 585 S.W.2d 936 (Ark. 1979), the court held that misrepresentation would not void the insurance policy, even though the dwelling was insured for $45,000 and worth only $20,500. Id. at 938. The court identified the following circumstances as relevant:
Id.
In Bardwell v. Conway Mutual Fire Insurance Co., 122 Mass. 90 (1877), the court refused to void the policy even though the insured did not provide a value for the property when the application requested it. Id. at 94. The court reasoned
In contrast, in personal property cases, courts have uniformly held that failure to disclose the value of the insured property is grounds for voiding the policy. In Merchants Fire Assurance Corp. v. Lattimore, 263 F.2d 232 (9th Cir.1959) (applying a California statute), the court held that the trial court committed reversible error in granting judgment to the insured in the amount of $9,950 for loss of unscheduled personal property covered by a personal property floater provision of the policy, because the insured failed to disclose that, in addition to the property declared in the application, she owned unscheduled personal property of the approximate value of $27,000. Id. at 242.
Where an insured obtained insurance coverage on art objects in the appraised amount of $275,800, without disclosing that the purchase price of such objects was only $19,800, and that the seller of such objects and the appraiser were one and the same person, the court held in Stone v. Those Certain Underwrites at Lloyds, etc., 81 Ill.App.3d 333, 36 Ill.Dec. 781, 401 N.E.2d 622 (Ill.Ct.App.1980), that such nondisclosure constituted misrepresentation that materially affected the insurer's risk and furnished grounds for rescission of the insurance coverage. Id. at 626. The court relied in part upon a provision in the application that asked the applicant whether there was any other material fact "within his knowledge" regarding the application, to which the applicant had answered "no." Id.
We find the reasoning of the real estate cases to be persuasive and so adopt the seemingly unanimous position that failure to disclose true value in a real estate insurance context will not give rise to a rescission claim. Some of the real estate cases cited above specifically note that the insurance company did not inspect the property in question before issuing coverage, as was the case here. This strikes us as a valid point, and one on which the real estate cases can be readily distinguished from the personal property cases that reach opposite conclusions. Here, for example, it would have been a simple matter for a State Farm agent to visit the Frenches' home, at which point it would have been immediately apparent that it was a manufactured home, even without going inside. In contrast, the true value of personal property, such as an art collection, would be much more difficult for the insurer to ascertain. Moreover, both of the personal property cases cited above contain additional circumstances that further distinguish them from this case. The Lattimore court relied in large part on a California statute that has no Indiana equivalent, and the Stone court relied heavily on a provision in the insurance application that required the applicant to provide any other material facts within his knowledge, neither of which applies here. We conclude that even if Jerry concealed or failed to disclose the true value or nature of his manufactured home, such does not give rise to a claim of rescission by State Farm. We do not think it is an unreasonable rule that insurance companies fail to ascertain the true value of insured real property at their peril, as they are in a far better position to accurately ascertain that value than most homeowners. We remand with instructions to enter summary judgment in favor of the Frenches on this claim.
The Frenches request this court to award them attorneys' fees. Indiana
Kahn v. Cundiff, 533 N.E.2d 164, 170 (Ind. Ct.App.1989) summarily aff'd, 543 N.E.2d 627 (Ind.1989).
We conclude that this issue is not yet ripe for appellate review. At the very least, neither party has yet prevailed, which the statute requires. "A prevailing party' is defined as a party who successfully prosecutes his claim or asserts his defense." Allstate Ins. Co. v. Axsom, 696 N.E.2d 482, 486 (Ind.Ct.App.1998), trans. denied.
Nonetheless, we have little trouble concluding as a matter of law that State Farm's defense in this case has not been frivolous. "A claim or defense is "frivolous" (a) if it is made primarily for the purpose of harassing or maliciously injuring a person, or (b) if the lawyer does not make a good faith and rational argument on the merits of the action, or (c) if the lawyer does not support the action taken by a good faith and rational argument for an extension, modification, or reversal of existing law." Wolfe v. Eagle Ridge Holding Co., LLC, 869 N.E.2d 521, 530 (Ind.Ct. App.2007). There is absolutely no indication in the record that State Farm asserted any defense for the purpose of harassment or injury, and State Farm's claims in this case, although not all successful, have been rational and well supported by citation to authority and argument. We conclude that the Frenches are not entitled to attorney's fees as a matter of law.
The Frenches contend that they are entitled to prejudgment interest on the additional amount they contend that State Farm should have paid them by December 15, 2003, or $106,753.26.
Oil Supply Co., Inc. v. Hires Parts Serv., Inc., 670 N.E.2d 86, 94 (Ind.Ct.App.1996) transfer granted, opinion vacated sub nom. Oil Supply Co. v. Hires Parts Serv., Inc., 683 N.E.2d 592 (Ind.1997) and aff'd in relevant part, vacated in part, 726 N.E.2d 246, 250 n. 3 (Ind.2000).
The issue of the award of prejudgment interest is not yet ripe for appellate review. In order for this court to address such a claim, there must be a judgment in favor of one party or another and a factual determination that the award of such fees is, or is not, warranted. Neither of these has occurred yet, leaving this court with nothing to review.
The Frenches contend that they are entitled to an additional $2495.41 in living expenses accrued between October 2003, and December 15, 2003, when they were able to occupy their stick-built home. In Coverage C, the policy provides that State Farm will cover necessary increases in costs incurred by the Frenches to maintain their standard of living following the loss. State Farm's payment under Coverage C, however, is limited to the shortest of "(a) the time required to repair or replace the premises; (b) the time required for your household to settle elsewhere; or (c) 24 months." Appellant's App. p. 194. State Farm argues that it has fulfilled its obligations under Coverage C because a new manufactured home could have been installed on the site by October 17, 2003, the date after which they stopped paying additional living expenses.
It is clear that this issue's disposition depends entirely on whether State Farm is ultimately determined to be liable for the cost of the stick-built home under the Frenches' claim of contractual liability. If the Frenches win on that claim, we conclude that the jury would be permitted to find that they are entitled to additional funds pursuant to Coverage C.
Additionally, among the damages the Frenches seek are fees related to obtaining a new mortgage loan in the amount of $1510.00 and builder's risk insurance in the amount of $1707.51. State Farm correctly points out that such items are not mentioned in the policy. As with the additional living expenses, we have little trouble concluding that these expenditures could be found to be reasonable and necessary costs related to the building of the stick-built home if State Farm is ultimately determined to be liable for that cost. The Frenches should be permitted to argue that the additional living expenses, mortgage fees, and builder's risk insurance were reasonable and necessary costs of replacing their original home with one of similar construction.
We affirm the trial court to the extent that it denied the parties' motions for summary judgment on the Frenches' contract claim and remand for trial on whether State Farm should be liable for the cost of their stick-built home as a reasonable and necessary cost to replace their manufactured home with one of similar construction. At trial, the Frenches may argue that additional living expenses pursuant to Coverage C, mortgage fees, and builder's risk insurance were reasonable and necessary costs of replacing their original home
The judgment of the trial court is affirmed in part, reversed in part, and remanded with instructions.
BAKER, J., and CRONE, J., concur.
