8 Fla. L. Weekly Supp. 275b

Insurance — Homeowners — Actual cash value — Appeal of partial summary judgment that term “actual cash value” includes general contractor overhead and profit — Where homeowners elected to recover under actual cash value provision of policy rather than repair or replacement cost, the meaning of “actual cash value” under the Actual Repair Rule, which provides that insurer’s liability for repair or replacement cost does not arise until after repair or replacement has been completed, was inapplicable since repairs did not need to be made in order to recover under ACV provision — While ACV means fair market value, term is ambiguous concerning whether it includes or excludes contractor’s profit and overhead — Ambiguous exclusionary provision construed in favor of insured — Partial summary judgment affirmed — Attorney’s fees — Homeowners’ motion for attorney’s fees provisionally granted, subject to their ultimately prevailing in underlying litigation

BANKERS SECURITY INSURANCE COMPANY, Appellant, v. GARY LITTLEFIELD and LESLIE LITTLEFIELD, Appellees. Circuit Court, 9th Judicial Circuit (Appellate) in and for Orange County. Case No. CVA199-34. Lower Ct. Case No. CCO98-6246. January 5, 2001. Appeal from the County Court for Orange County; Jerry L. Brewer, Judge. Counsel: David H. Popper, David H. Popper & Associates, P.A., for Appellant. Randy E. Schimmelpfennig, Billings, Cunningham, Morgan & Boatwright, P.A., for Appellee.

(BEFORE MILLER, CONRAD, and DAWSON, JJ.)FINAL ORDER AND OPINION

(PER CURIAM.) Appellant, Bankers Security Insurance Company’s (“BSI”), appeals from a non-final order granting partial summary judgment in favor of Appellees, Gary and Leslie Littlefield (“Littlefields”). The Littlefields have also filed a Motion For Attorney’s Fees for the appeal. This Court has jurisdiction pursuant to Florida Rule of Appellate Procedure 9.030(c)(1)(B). See Fla. R. App. P. 9.320. We dispense with oral argument.FACTS

On July 5, 1997, the Littlefields’ home was damaged by a tornado. At the time, the Littlefields had a homeowners’ insurance policy issued by BSI. The policy provided that in the event of damage to the home, the Littlefields could collect the costs of repairing the damage or the “actual cash value” of the damaged portion of the insured premises as of the date of the loss.¹

BSI estimated the replacement cost on a basis which included an estimate of what a general contractor would charge if one were hired to supervise the repairs. BSI’s Field Adjuster, Santiago Gonzalez, and the Littlefields agreed on a “scope of damages” of $14,498.91. The general contractor overhead and profit, $2,416.48, was then deducted from this figure, resulting in a repair or replacement cost of $12,082.43. Depreciation of $2,081.97 was deducted resulting in the actual cash value of $10,000.46, from which the Littlefields’ deductible of $500 was subtracted, resulting in the sum of $9,500.46 paid by BSI to the Littlefields.

The Littlefields thereafter filed suit against BSI alleging that BSI breached its contract of insurance by wrongfully and in violation of the insurance contract, holding back $2,416.48 of the agreed upon settlement. BSI filed its Answer and subsequently filed a Motion for Summary Judgment or in the Alternative to Dismiss. The Littlefields in turn filed a Motion for Partial Summary Judgment, seeking a judgment that the term “actual cash value” includes general contractor overhead and profit. BSI filed a Response to the Littlefields’ Motion and BSI also filed its own Motion for Summary Judgment on the same issue.

After holding a hearing on the two Motions for Summary Judgment, the trial court entered an order, granting the Littlefields’ Motion for Partial Summary Judgment, finding in essence that the term “actual cash value” was ambiguous and that the Littlefields were therefore entitled to recover general contractor overhead and profit as part of “actual cash value” under BSI’s policy. BSI now appeals.DISCUSSION

BSI argues that “actual cash value” (“ACV”), as described in the policy, is not ambiguous and does not include general contractor overhead or profit. In reaching this conclusion, BSI argues that Florida adheres to the “Actual Repair Rule” with respect to payments above ACV, and BSI claims that the case of State Farm Fire & Cas. Co. v. Patrick, 647 So. 2d 983 (Fla. 3d DCA 1994) supports this argument.

In Patrick, the court reversed the trial court’s finding that the insurance company had wrongfully withheld depreciation costs. Patrick had a replacement cost insurance policy on his property with State Farm. See Patrick, 647 So. 2d at 983. The insurance company estimated the cost of repair or replacement at $14,207.28. See id. State Farm paid $11,102.87, withholding $250 for the deductible and $2,854.41 as depreciation. See id. Patrick completed the work himself for $11,034.86, and the insurance company refused to pay the amount withheld.

Patrick argued that the insurance company should pay the total amount that it estimated it would cost to repair or replace his property, despite the completion of the work for a lesser amount. See id. at 984. The court pointed out that the policy plainly provided that the insurance company would “not pay more for loss in any one occurrence on a replacement cost basis than … the amount you actually spend that is necessary to repair or replace the lost or damaged property.” Id. at 984.

BSI claims that Patrick demonstrates that Florida uses the Actual Repair Rule, which states that an insurance company’s liability for replacement cost does not arise until the repair or replacement has been completed. See id. at 983. BSI also states that the Littlefields’ policy provides that no amount above the ACV of the loss will be paid to the insureds unless and until actual repair or replacement takes place.

In response, the Littlefields argue that the Actual Repair Rule does not even come into consideration in the case at hand because it involves payment of amounts in excess of the ACV prior to the repairs actually being made. The Littlefields do not claim to be owed any amount in excess of the ACV.

While the Patrick case does apply the Actual Repair Rule in Florida, it is not dispositive on the issue of whether contractor profit and overhead is contained in ACV. The issue in Patrick differed from the issue at hand because it dealt with depreciation costs and did not discuss what is included or excluded from ACV. The plaintiff in Patrick did not choose to disregard the replacement cost loss settlement provisions and make claim for the damage to the buildings on an actual cash value basis under the policy as the Littlefields have chosen to do in this case. Further, the applicable policy provision in Patrick was clear whereas the meaning of the policy provision involved herein is not as clear.

There are three cases from various jurisdictions outside of Florida which are relevant to the situation at hand. See Salesin v. State Farm Fire & Cas. Co., 581N.W.2d 781(Mich. Ct. App. 1998); Gilderman v. State Farm Ins. Co., 649 A.2d 941(Pa. Super. Ct. 1994);and Snellen v. State Farm Fire & Cas. Co., 675 F. Supp. 1064 (W.D.Ky. 1987).

In Snellen, 675 F. Supp. 1064,which was decided in Kentucky in 1987and which applied Kentucky law, the court was faced with facts and policy language that were similar to the facts and policy language at issue here. The court held that it was not error to deduct depreciation from the cost of repair or replacement of specific items of the plaintiff’s building in order to arrive at the ACV of the damage. See id. at 1068. The court also stated that

since the goal is to arrive at the actual cash value of the damage, non-damage factors which are applicable only in the instance of repair or replacement such as clean up, profit, overhead, and permits were properly deducted. These factors have no relation to the value of the damage but only to the expense which would be incurred if repair or replacement were involved.

Id. at 1068.

BSI argues that Snellen is instructive since it dealt with what could be recovered as part of ACV and supports its argument that profit and overhead should not be included in that figure.

The Littlefields argue that the plaintiffs in Snellen were actually seeking the replacement value of their home without having the repairs done and concede that a contractor’s overhead and profit is involved only when replacement cost is paid. The Littlefields claim that since they reached an agreement with BSI on the ACV of the damage, the only thing that can now be withheld from that settlement is depreciation and the deductible.

The Littlefields are correct in that Snellen dealt with ACV in the context of the replacement value of the home. The plaintiffs were seeking the replacement value of the home without doing the repairs. While the court went on to state what was to be included in ACV, it did so regarding the ACV under the repair or replacement cost option. The plaintiff did not elect to disregard the replacement cost loss settlement and recover the ACV of the damage. See id. at 1067-68. As evidenced in the following cases, there are different factors to consider when analyzing ACV in the context of a replacement cost option and when considering ACV on its own and disregarding the replacement cost loss settlement provisions.

In Gilderman, 649 A.2d 941, a case from Pennsylvania, the issue was whether an insurer, which agreed to pay repair or replacement costs less depreciation in advance of actual repair or replacement of a covered loss, may automatically withhold both depreciation and a flat twenty percent representing contractor overhead and profit from its advance payment. See id. at 942.The difference between the situation in Gilderman and the one in this case is that the insurer pays in advance in Pennsylvania whereas Florida follows the Actual Repair Rule and the insurers do not pay in advance. Gilderman also dealt with the payment of repair or replacement cost as opposed to ACV.

In Gilderman and in the case at hand, the term “Actual Cash Value” is not defined. The Gilderman court stated that it has been consistently interpreted to mean “the actual cost of repair or replacement less depreciation.” Id. at 943 (citation omitted). In this case, as well as in Gilderman, the insurer agreed to pay to its insureds the ACV of a covered loss whether or not repairs or replacement actually occur. See id. at 945. The Gilderman court stated that “[r]epair or replacement costs logically and necessarily include any costs that an insured reasonably would be expected to incur in repairing or replacing the covered loss.” Id. at 945. One of the insurer’s arguments was that it is unfair for an insured to receive payments in advance for these expenses since they are contingent and may never be incurred. See id. The court was not persuaded by this argument, stating that all repair or replacement costs are, in theory, contingent prior to being incurred. See id. After expressing that it believed there were certain types of property damage claims which would not require the services of a general contractor, the court analyzed what the insurer agreed to pay to its insureds prior to actual repair or replacement, and found that:

It agreed to pay “actual cash value,” which means “repair or replacement cost less depreciation.” Thus, the real inquiry is what is included in “repair or replacement costs.” We hold that repair or replacement costs include any cost that an insured is reasonably likely to incur in repairing or replacing a covered loss. In some instances, this will include use of a general contractor and his twenty percent overhead and profit.

Id. at 945.

The court stated that there are some situations where a contractor will not be used and that in those situations the profit and overhead would not be included in the ACV. See id. at 945. The Gilderman court indicated that in situations where no contractor will be used, no profit will be included in the ACV which is paid in advance of the repairs. Thus, the Guilderman court held that the insurer may not automatically withhold the overhead and profit from the advance payment. See id. at 942, 945.

BSI argues that Gilderman does not support the Littlefields’ argument. First, it argues that Gilderman is distinguishable because Pennsylvania does not follow the Actual Repair Rule, which is followed in Florida according to the Patrick case. See Patrick, 647 So. 2d 983. The court in Gilderman decided the case based on a requirement to pay replacement costs before repair and not after. See Gilderman, 649 A.2d at 941.

Second, BSI argues that Gilderman did not hold that overhead and profit should always be paid, even under the advance payment rule. See id. at 942. The court only ruled that the charges should not be automatically withheld. See id. In so holding, the court stated that there are situations where the services of a general contractor will not be needed and others where the services of a contractor would be needed, and that the insurer may not deduct the contractor’s fees when those expenses are reasonably expected to be incurred. See id. at 945. BSI argues that because payments are made in advance of repairs in Pennsylvania, it first must be determined whether the necessary repairs will include the services of a contractor. If those services are needed, the profit and overhead may not be deducted from the advance payment. BSI argues that because payments are not made in advance in Florida, and since in the case at hand the repairs have been made and the services of a contractor were not used, the Littlefields are not entitled to value of those services.

The Littlefields argue that Gilderman supports their position and specifically rejects one of BSI’s arguments. The Gilderman court rejected the argument that to pay an insured for a repair or replacement cost which may never be incurred would result in a windfall for the insured. See id. at 946. The court rejected this argument because the insureds under these types of policies pay an additional premium for repair or replacement coverage so they can afford to repair or replace a loss at the current market value and keep the value of the property the same. See id. “An insured loses the benefit of the replacement cost coverage by electing not to repair or replace.” Id. at 946.

The factor that distinguishes Gilderman and its analysis from the case at hand is that in Gilderman, the court is discussing ACV in the context of the repair and replacement option of the policy and not the ACV portion of the policy. This analysis takes into consideration the fact that the repairs are going to be made at some point. In the case at hand, the Littlefields were proceeding under a different section of the policy and opted to receive the ACV of the damage under section 3(d) of the Replacement Cost Settlement Endorsement portion of the policy. This section states: “You may disregard the replacement cost loss settlement provisions and make claim under this policy for loss or damage to the buildings on an actual cash value basis.”

In Salesin, 581 N.W.2d 781, the court goes into the greatest detail in its analysis, discussing both the Gilderman and Snellen decisions along with Smith v. Michigan Basic Property Ins. Ass’n, 490 N.W.2d 864 (Mich. 1992). In Salesin, the insured sustained water damage to his home and submitted a claim to the insurer. See Salesin, 581N.W.2d at 783. The insurer sent the insured an estimate for the ACV which deducted sums for contractor profit and overhead. See id. The court had to decide whether the insurer could deduct the overhead and profit from the ACV. When the court discussed Smith, 490 N.W.2d 864, it noted that its facts differed from those of Smith because the policy in Smith contained an additional limitation on liability. See Salesin, 581 N.W.2d at 787. The policy in Salesin lacked the limitation on what it would pay as the ACV of “the amount actually and necessarily spent to repair or replace the damaged building.” See id. at 787.

The court then discussed Snellen, 675 F. Supp. 1064, pointing out that the policy in that case also contained the limitation on liability. See Salesin, 581 N.W.2d at 789. The court stated that Snellen clearly supports the insurer’s position that the term ACV allows the deduction of both depreciation and contractor’s overhead and profit. See id. at 789. However, the court stated that regarding the Actual Repair Rule, the Snellen decision was unpersuasive concerning the logic of allowing a deduction of contractor’s overhead and profit on the ground that it is a non-damage factor that has no relation to the value of the damage. See id.

The Salesin court also discussed Gilderman, 649 A.2d 941. The court explained that the policy in Gilderman contained the limitation of “the amount actually and necessarily spent to repair or replace the damaged building.” See Salesin, 581 N.W.2d at 789. The court further explained that the actual issue in the Gilderman case was whether the insurers could automatically withhold the twenty percent representing contractor overhead and profit from its advance payment. See id. at 790.

The court stated that Gilderman clearly supported the insured’s argument that ACV allows the deduction of depreciation but not of contractor’s overhead and profit, but did not support the position that contractor’s overhead and profit should always be automatically included in the advance payment of ACV before repairs are actually made. See id. at 790-91. It also offered its analysis of what the Gilderman court meant by its comments on the “windfall theory.” Its interpretation of the Gilderman court’s discussion of the insurer’s windfall argument was that an insured under a repair or replacement cost policy,

could receive the “actual cash value of the damage” (with a deduction for depreciation but without a deduction for contractor’s overhead and profit) before actual repair or replacement but following actual repair and replacement could claim an additional amount (but still within the overall limits of policy limits, replacement cost, or amount actually spent) that would include depreciation. In passing, we note that this additional amount could, within the same three limits, probably include unanticipated items of cost that were not included in the original estimate.

Id. at 791 n. 12.

The court found the rationale of Gilderman more persuasive than that of Snellen on the issue of contractor’s overhead and profit. See id. at 791. The court found it no more logical to exclude the cost of contractor’s overhead and profit from the ACV on the grounds that they are “non-damage factors” than to exclude the cost of labor or materials. See id. This was especially true in Salesin because the policy contained only two of the three policy limits that were present in the other cases. See id. The court concluded by expressing that while it was uncomfortable with finding that the insured is owed the additional overhead and profit which he had not incurred and would most likely not incur, he had paid a premium for that type of full replacement cost policy. See id. “There is no logical reason, nor any reason based on the insurance policy itself or the record below, for deducting estimated contractor’s overhead and profit.” Id. at 791-92.

The analysis from Salesin also differs from the present situation because Salesin discussed the meaning of ACV in regards to repair or replacement cost. Although the policy in the case at hand does contain the third limitation of liability described in Salesin, that limitation applies to the repair or replacement cost option. As stated earlier, the Littlefields chose to recover under Section 3(d) of the policy and disregard the replacement cost loss settlement provisions and make claim under the policy for damage to the building on an actual cash value basis.

The case law discussed above and cited by the parties does not provide a sufficient analysis or precedent for the meaning of ACV under Section 3(d) of the policy at issue in this case. While the case law does provide assistance in determining what makes up ACV in the context of the repair or replacement option, it demonstrates that different considerations had an influence on that analysis. When determining the meaning of ACV for the purposes of repair or replacement, some factors to consider are whether the Actual Repair Rule applies, whether the services of a general contractor are necessary, and the limitations contained in that portion of the policy. However, as the policy in this case states, under Section 3(d) the insured may disregard the replacement cost provisions and make a claim on an ACV basis. The meaning of ACV under Section 3(d) does not take into account the Actual Repair Rule since the repairs do not need to be made in order to recover. Also, the policy specifically states that the replacement cost provisions are to be disregarded if the insured chooses the option of receiving the ACV. Thus, an analysis of the meaning of ACV which takes these considerations into account is not applicable to this situation.

A Florida case that discusses ACV outside of the context of replacement value is American Reliance Ins. Co. v. Perez, 689 So. 2d 290 (Fla. 3d DCA 1997). Although this case does not discuss the issue of contractor profit or overhead, it is the most applicable to the situation at hand. In Perez, the plaintiffs sustained damage to their home and chose to receive the ACV under the policy as opposed to the replacement cost. See id. at 290. The insurer paid the insured the cost of replacement less an amount for depreciation and the insureds sued to recover this amount. See id. at 291. The trial court granted partial summary judgment in favor of the insureds. See id. On appeal, the trial court was reversed and the court found that the controlling language was not ambiguous. See id. “The expression `actual cash value’ is an often-used appraisal term, generally synonymous with `market value’ or `fair market value.”’ Id. at 291 (footnotes omitted). The court stated that the term means the amount of money which a purchaser willing but not obliged to buy the property would pay to an owner willing but not obliged to sell it, taking into consideration all uses to which the property is adapted and might in reason be applied. See id. (citing City of Tampa v. Colgan, 121 Fla. 218, 230, 163 So. 577, 582 (1935)). The court remanded the case to the trial court for an appraisal of the fair market value of the damage suffered.

The Perez case supports the contention that ACV means “fair market value” and that the term is not ambiguous concerning whether depreciation is deducted from ACV. However, the court makes no mention of overhead or profit. Thus, Perez isinconclusive on the issue of whether overhead and profit are included or excluded from ACV. While BSI is correct in its assertion that ACV is synonymous with fair market value, it has not shown that the term ACV is not ambiguous concerning whether it includes or excludes contractor’s profit and overhead. Exclusionary provisions which are ambiguous or otherwise susceptible to more than one meaning must be construed in favor of the insured, since it is the insurer who usually drafts the policy. See Excelsior Insurance Co. v. Pomona Park Bar & Package Store, 369 So. 2d 938, 942 (Fla. 1979). “An ambiguity arises when more than one interpretation `may fairly be given’ to a policy provision.” Ellsworth v. Insurance Co. of N. Am., 508 So. 2d 395, 400 (Fla. 1st DCA 1987). Thus, the trial court’s order granting summary judgment in favor of the Littlefields on the grounds that the term ACV is ambiguous is affirmed.ON MOTION FOR ATTORNEY’S FEES

The Littlefields seek attorney’s fees pursuant to Florida Rule of Appellate Procedure 9.400(b) and Section 627.428, Florida Statutes. Section 627.428, Florida Statutes states:

Attorney’s fee. —

(1) Upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of any named or omnibus insured or the named beneficiary under a policy or contract executed by the insurer, the trial court or, in the event of an appeal in which the insured or beneficiary prevails, the appellate court shall adjudge or decree against the insurer and in favor of the insured or beneficiary a reasonable sum as fees or compensation for the insured’s or beneficiary’s attorney prosecuting the suit in which the recovery is had.

Since the Littlefields are insureds whom have prevailed against their insurer in this appeal, they are entitled to a reasonable sum as fees or compensation for their attorneys pursuant to Section 627.428, Florida Statutes if they ultimately prevail in the underlying litigation. Therefore, the Motion for Attorney’s Fees is provisionally granted.

Accordingly, it is hereby

ORDERED AND ADJUDGED that the trial court’s entry of Partial Summary Judgment is AFFIRMED.

FURTHER ORDERED that the Littlefields’ Motion for Attorney’s Fees is provisionally granted, subject to the Littlefields ultimately prevailing in the litigation. (MILLER, CONRAD, and DAWSON, JJ., concur.)

__________________

¹The policy specifically states:REPLACEMENT COST SETTLEMENT ENDORSEMENT

3. Loss Settlement. Covered Property losses are settled as follows:

….

b. Buildings under Coverage A or B at replacement cost without deduction for depreciation. We will pay no more than the smallest of the following:

(1) The Limit of liability under this policy that applies to the building;

(2) The replacement cost of that part of the building damaged for like construction and use on the same premises; or

(3) The necessary amount actually spent to repair or replace the damaged building.

c. We will pay no more than the actual cash value of the damage until actual repair or replacement is complete. Once actual repair or replacement is complete, we will settle the loss according to the provisions of b. above.

….

d. You may disregard the replacement cost loss settlement provisions and make claim under this policy for loss or damage to the buildings on an actual cash value basis. You may then make claim within 180 days after loss for any additional liability according to the provisions of Condition 3. Loss Settlement.

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