Daily Development for Monday, January 28, 2002

By: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
prandolph@cctr.umkc.edu

INSURANCE; CASUALTY; STATED VALUE; DOUBLE COVERAGE: Under "fixed value statute," insurer who carries policies from two different insurers may recover face amount from both insurers when property is destroyed, even if the amount of coverage exceeds the loss.

St. Paul Reins v. Irons, 45 S.W. 3d 366 (Ark. 2001)

Insured carried two casualty insurance policies from two different insurers. Her property was destroyed by an arson fire, but there was no evidence that she was responsible for the fire. The total face amount of the policies was $285,000 ($105,000 on one and $80,000 on the other).

An appraisal indicated the loss was $92,000.

Each of the policies contained identical language requiring reduction of the proceeds to take into account the existence of other insurance. But an Arkansas statute required that when a policy provides coverage of a stated value, and the property is a "total loss," the insurer must pay the face amount.

"In case of a total loss by fire or natural disaster of the [real] property insured, a property insurance policy other than for flood and earthquake insurance shall be held and considered to be a liquidated demand against the company taking the risk for the full amount stated in the policy or the full amount upon which the company charges, collects, or receives a premium."

Insurers argued that, despite the language of the valued-policy statute, it would be against public policy to allow an insured to receive a double recovery by insuring property with multiple policies. Insured's argument was simple: That's not the law.

The court noted that statutes of this sort are passed for the purpose of avoiding the uncertainty of determining the value after the fire. The manifest policy of the statute is to guard against over-insurance of the property. It noted that the agents of the company have the opportunity to inspect the property fully before taking the insurance and fixing the amount of the premiums. A concurring judge further noted that insurers can always inquire of applicants (or renewal applicants) whether the property is insured through any other insurer, and then can make a determination as to whether it will insure.

Further, the court noted that the insurers happily accepted premiums for their insurance that was predicated on a risk reflected in the face amount of the policy. Under such circumstances, the court concluded, the insurers were not equitably harmed. And, under the express language of the statute, there was no reason to conclude that the "windfall" received by the insured was inequitable. Either insurer or insured was going to get a fortuitous benefit. Why not the insured?

Of course, one answer to the "why not the insured" question is that the policy expressly provided otherwise. But the court concluded that the language of the statute overrode any inconsistent language in the policy.

Comment 1: It's difficult to conclude that the insurer really accepted the risk, since the policy didn't provide for it. On the other hand, doesn't the court have a point that the insurer was paid the same amount regardless of the existence of other policies, and was in a position to identify the existence of other policies and modify its coverage accordingly (or refuse to insure altogether)?

What if the policy provided that it was void if the insurer obtained insurance from another carrier? The problem is, of course, that in many of these circumstances the double coverage results from inadvertance.

The insured obtains new coverage and then, without realizing it, renews the old coverage.

Comment 2: The court cites Crouch on Insurance for the proposition that its holding is in accord with the general trend. Insurance mavens are invited to disagree. It also would be helpful to know whether statutes such as the Arkansas statute are in general use.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

Items in the Daily Development section generally are extracted from the Quarterly Report on Developments in Real Estate Law, published by the ABA Section on Real Property, Probate & Trust Law. Subscriptions to the Quarterly Report are available to Section members only. The cost is nominal. For the last six years, these Reports have been collated, updated, indexed and bound into an Annual Survey of Developments in Real Estate Law, volumes 1‑6, published by the ABA Press. The Annual Survey volumes are available for sale to the public. For the Report or the Survey, contact Maria Tabor at the ABA. (312) 988 5590 or mtabor@staff.abanet.org

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