Opinion
NNHCV136037086
08-31-2017
R&P Realty Company et al. v. Peerless Indemnity Insurance Company
UNPUBLISHED OPINION
MEMORANDUM OF DECISION
Patty Jenkins Pittman, Senior Judge.
The plaintiff R& P Realty and the plaintiff Unger's Floor Covering, Inc. are the lessor and lessee, respectively, of real property located at 915 Grand Avenue in New Haven, Connecticut. Robert Unger is a principal of both entities (and both have identical interests in this litigation, such that they will be referred to hereafter as the " plaintiff, " singular). The property contains an older brick structure which houses a floor covering business. In February 2011, the building suffered damage as a result of an overload of snow and ice on the roof. In August of 2011, the building suffered damage in a hurricane. It is the first of these events and its consequences that is the subject of this lawsuit.
The plaintiff has abandoned its claim for hurricane damage originally pleaded in the, Second Count of the Amended Complaint.
The defendant Peerless Indemnity Insurance Company provided a policy of casualty insurance to the plaintiff The amount of casualty insurance available in case of damage to the building from a covered event was $1,375,656. When the plaintiff filed an insurance claim for the damage to the building from the snow overload, the defendant and the plaintiff engaged in an adjustment process that resulted in a payout to the plaintiff of $167,006.03 representing the actual cash value of the loss, taking into account depreciation.
The plaintiff alleges in this lawsuit that after the insurance payout, the plaintiff discovered that the building needed more comprehensive repairs than was anticipated. First the plaintiff alleges that the exterior brick walls that helped support the damaged ceiling beams were more severely compromised than was apparent, so that additional repairs and reconstruction were needed to the exterior brick walls. Second the plaintiff alleges that the presence of asbestos and lead was detected in some of the areas of the building that were to be partially demolished, which would necessitate a more extensive and expensive renovation process. The plaintiff alleges that the defendant insurer is contractually obligated to cover these costs but has refused to do so such that the defendant has breached the terms of the insurance policy.
The defendant denies the breach of contract claims and asserts eleven special defenses. The case was tried to the court on May 23 and 24, 2017, and briefs were filed by the parties on June 14, 2017. At the court's request, the parties provided additional argument on July 12, 2017, and filed supplemental briefs on August 14, 2017.
The First Special Defense alleges that the plaintiffs have failed to state a claim upon which relief can be granted. This is clearly inapt, as it addresses the legal sufficiency of the complaint and does not allege new facts in defense of the plaintiff's claims. The Second Special Defense alleges a failure to mitigate damages. The Third Special Defense alleges that the action is barred by the " Statute of Limitations, " without any statutory citation. The Fourth, Fifth, and Seventh Special Defenses sound in equity and are inapplicable to a breach of contract Claim. The Sixth Special Defense alleges " waiver" without specifying any underlying facts about what was waived and who waived it. The Eighth Special Defense alleges accord and satisfaction. The Ninth Special Defense alleges that some of the plaintiff's losses occurred because of the plaintiff's delay in undertaking and completing restoration work on the property, essentially a " failure to mitigate" defense. The Tenth Special Defense alleges that the plaintiff failed to resume operations in a timely manner, also a mitigation of damages defense. The Eleventh Special Defenses alleges that the plaintiff failed to comply with Section E of the insurance policy in that the plaintiff failed to give prompt notice and a description of the damages.
After a thorough consideration of the evidence and the law, the court finds against the plaintiff and in favor of the defendant.
FACTS
The damages from the snow overload of the 2011 winter were apparently detected when the parties began to do inspections and repairs alter the August 2011 hurricane damage. The plaintiff retained an engineering firm--Spiegel Zamecnik & Shah, Inc.--that produced a report in June 2012. David E. Carlson, P.E., the author of the report, found numerous failures of roofing members--rafters, joists, and girders--that compromised the roof and created a safety hazard. Mr. Canton attributed the damage to the heavy snow loads of the winter of 2010-2011. He recommended the removal of the entire roof and roof framing structure and a reconstruction using new columns and new wooden framing over the showroom (southerly) portion of the building. The Plaintiffs also retained a public adjuster, David Biller, to assist in dealing with the defendant insurance company to arrive at an appropriate figure for the loss.
The defendant accepted that roof had been damaged by an event covered by the insurance policy. The defendant also agreed that the replacement of the roof and its supporting structures on the showroom part of the building was necessary. The defendant retained a private adjuster--Stuart Flax, then working for Interstate Restoration--who inspected the property himself and who enlisted the services of a forensic engineer to assist him in evaluating the extent of the damage and to assist in arriving at a figure for the loss.
The final figure was the result of a number of communications among the two adjusters--Mr. Biller for the plaintiffs and Mr. Flax for the defendant--and the claims representative Randy Ramsdell. It was apparent to all of the adjusters and engineers and to Mr. Unger and to Mr. Ramsdell that there was some damage to the east exterior wall. Complicating matters, the rafters that were damaged by the snow load had been constructed in a way that they were " pocketed" into the exterior brick walls of the building, that is, that the ends of these rafters were resting on pockets built in to the brick structure, so that they were partially supported by the walls on which they rested. Nonetheless during the negotiations regarding the extent of the loss to be compensated by the insurer, while there was discussion of the deterioration of the outer walls, there was no cost assigned to a complete removal and rebuilding of these exterior walls.
From the point of view of the defendant, then and now, the damage to the exterior walls was not the result of the snow overload. Rather the defendant concluded that the partial collapse of the east wall and any potential damage to the opposite wall were due to age and deferred maintenance. As the defendant and its witnesses noted, the pointing between the bricks was grainy and crumbling. The east wall had bowed out during its partial collapse rather than being pulled inward as would have been most probable if the damage was caused by the collapsing rafters and joists which in turn was caused by the snow overload.
From the point of view of the plaintiff, the wall was the least of its worries. The plaintiff had already paid out money for temporary repairs to keep the building open and the business running, and the proposed new roof construction would have all new supporting structures that did not depend upon the brick walls for support.
The number to which the plaintiff and the defendant finally agreed contained a cost for removing and rebuilding the roof with new supporting structures right down to the basement level, for reconfiguring certain heating and ventilation equipment and electrical routes, and for repairing or renovating certain interim areas and finishes. The cost included for the demolition of the existing roof was $26,738.83. There was no cost included to substantially rebuild the outer brick walls. The defendant issued a check for $167,006.03 on October 17, 2012, and the plaintiff accepted that payment.
Of note for purposes of this case is that the plaintiff and the defendant both used the " actual cash value" rubric in agreeing to the loss payout, rather than the restoration or replacement cost. Under this policy provision, the actual cash value, less depreciation, is paid for the damage, without regard to whether the plaintiff makes repairs to the building. Should the plaintiff elect to make a claim for the cost to repair or replace the damaged parts of the building, the plaintiff is obligated to first make the actual repairs and then submit the invoices or proof of the cost of each repair to be reimbursed by the insurer.
For an explanation of the of the differences between the actual cash value method and replacement cost method in the payout of claims, albeit in a different fact pattern, see the recent case of Kellogg v. Middlesex Mutual Assurance Company, 326 Conn. 638, n.2 (August 22, 165 A.3d 1228, 2017).
In 2013 the plaintiff began to plan for the new roof. As part of that process, it commissioned architectural plans that recommended completely replacing the east wall of the building. The architectural plans presupposed a set of healthy exterior walls to which a series of trusses could be anchored to support the roof. Kris Marshak, who owned New Image Building Contractors and who performed some of the temporary repairs on the roof, noted that the east wall would have to be replaced in order to accomplish this. Marshak noted that the mortar in the existing damaged brick wall was powdery, even " funky." The wall showed significant deterioration because of its age and needed to be replaced if it was to support any new construction. Marshak had no opinion about whether the partial wall collapse was the result of the overload of snow.
The plaintiff obtained an estimate to reconstruct the wall from Olger Kulla who, under the name of Dave's Masonry, had done a partial repair to the wall. Kulla estimated the cost of rebuilding the wall as a masonry wall to be $89,000, although some of that price, up to $10,000, was attributed to bonding not just the east wall but also the west wall.
Meanwhile as to the roof repairs, the plaintiff engaged a testing company--ChemScope--to test for the presence of asbestos and lead in the components that were to be demolished during the reconstruction of the roof. Daniel Sullivan, president of ChemScope, concluded that asbestos-containing material (" ACM") was present in at least two small areas of the roofing membrane. Also the presence of lead-based paint was detected on an old metal ceiling that was underneath a hanging ceiling over the showroom. All of these components were part of the demolition contemplated by both parties in their adjusted settlement: although the potential presence of asbestos or lead in the material to be demolished was never discussed. Sullivan's company does not do demolition or building construction. Sullivan is familiar with the fact that demolition involving asbestos-containing materials and lead is covered by OSHA regulations and state laws. These require that workers involved in such demolition have special training, clothing and apparatus, and that there be special means of handling and removing the debris.
On December 4, 2013, the plaintiff obtained a revised estimate from AAIS, a company that does demolition work involving ACM and lead. The estimate for demolishing and removing all of the old roofing material in a safe and safety-compliant manner is $90,139.26.
The Claim for Damage to the Exterior Walls
In making a claim for damages under a breach of contract theory, the plaintiff must prove that the damage for which it seeks compensation was the result of a covered event. Based on the credible evidence produced at trial, the court finds that the crumbling of the east wall (and the likely failure of the west wall in the future) was the result of age, not the result of a snow and ice overload.
But even if the plaintiff had succeeded in proving that the wall collapsed as a result of the ice and snow overload of the previous winter, the court would be compelled to find that the adjustment and payout precludes the plaintiff from supplemental recovery in this case for two reasons.
In proceeding to accept an adjustment under the actual cash value method, the plaintiff is barred by the Special Defense of accord and satisfaction. In this case, the plaintiff concedes that its own assessment of damages presupposes a reasonable discovery standard, that is, that if the damage that is the subject of a potential claim could reasonably have been discovered, as opposed to it being hidden or latent in some way, then the plaintiff is bound by the adjustment that occurred and cannot make a supplemental claim.
Here the court finds that the wall deterioration was discovered and discussed as part of the agreement in the initial Proof of Loss, as was the extent of that deterioration and what would be included in the scope pursuant to the Proof of Loss. The plaintiff and the defendant came to an agreement on the scope that was the product of a fair negotiation. The plaintiff did not continue to pursue the issue of the demolition and reconstruction of the east exterior wall, but submitted a sworn Proof of Loss that excluded a claim for full payment for that item with the understanding that a compromise had been reached. The defendant accepted the plaintiff's statement of the scope of the loss and made a good faith payment based on the plaintiff's submission. And, as discussed before, the plaintiff elected to use the actual cash value method in its proof of loss. This amounts to an accord and satisfaction for the losses of which the plaintiff was aware at the time or of which the plaintiff should reasonably have been aware.
The plaintiff's decision, upon further inspection and advice, to fully repair the wall and to do so, in part, to provide support for a new roof, is not an unreasonable one. But absent proof that the wall deterioration and damage was because of an event covered by the policy, the plaintiff cannot compel the defendant to pay for it. The court finds there to be an absence of such proof.
The second reason is that in order to recover under the policy for the repair or replacement cost, the plaintiff is obligated to provide reasonable notice to the defendant in an attempt to adjust the claim and, more importantly, is obligated to complete the actual repair before compelling the insurer to make payment for the actual cost to repair. The insurance policy in this case provides that the defendant is not obligated to pay for the increased cost of construction under the replacement cost option " [U]ntil the property is actually repaired or replaced . . . and [u]nless the repairs or replacement are made as soon as reasonably possible after the loss or damage, not to exceed two years. [The insured may extend this period in. writing during the two years." Exhibit A, Section A.4e(7), page 156.
Despite an initial payout for the actual cash value of the loss, the plaintiff, six years later, has still not undertaken any permanent repair to the roof structure. Under these circumstances the defendant has not breached the contract by refusing to pay for any estimated repair costs above the actual cash value of the loss already paid.
The Claim for Supplemental Damages for Asbestos and Lead Removal
Unlike the issue of the crumbling exterior walls, the potential presence of asbestos and lead was never discussed by the parties, nor is there evidence that either party independently considered the risk that contaminants were present. What has been proved is that all of the roof, roofing members, and interior ceilings needed to be demolished and reconstructed as a result of a covered event under the policy. While it might be prudent to conduct lead and asbestos testing every time an older building is to be renovated in some way, there is no evidence that this is a common standard in the construction industry. Rather the court finds this to have been a latent condition, not contemplated by either party in the course of adjusting the insurance claim.
That being said, the defendant insurer might still be obligated under the policy if it had been given reasonable notice of the supplemental claim. But it appears that the issue of asbestos and lead was never presented to the defendant until nearly the start of this litigation, certainly more than two years after the date of the loss. And as with the damage to the exterior wall, if recovery is sought for the repair or replacement cost, rather than the actual cash value, the policy requires the insured to first perform the repairs before the defendant is obligated to pay for these increased costs.
Conclusion
The plaintiff has failed to prove by preponderance of the evidence that the defendant has breached the contract or any other duty to the plaintiff. Judgment shall enter in favor of the defendant and against the plaintiff.