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November 00, 2016  

 Q&A of the Week
Difference between Agreed Value and Functional Building Valuation

A Pennsylvania subscriber recently asked the following question:

Is there a difference between agreed value and functional building valuation. Which is better?

Insured has four-story building. If loss occurred, he would want only a two-story building.

What form will provide better coverage?

ANSWER: Functional building valuation allows the insurer to pay the least of the following for the repair or replacement of the building: the limit shown in the schedule; in the event of a total loss, the cost to replace the damaged building on the same site, or a different site if required by an ordinance or law, with a less costly building that is functionally equivalent to the damaged building; in the event of a partial loss, the cost to repair or replace the damaged portion of the building with less costly material, if available, in the architectural style that existed before the loss or damage occurred and the amount the insured actually spends to demolish and clear the site of undamaged parts of the building; or the amount actually spent to repair or replace the lost or damaged building with less costly material if available to demolish and clear the site of undamaged parts of the building. (As specified on the ISO Functional Building Valuation form, CP 04 38).

Agreed value is usually an optional coverage on a commercial property form that provides an amount that the insured and insurer agree the property is worth. This requires a submission of a statement of values on an annual basis. This option is often used to avoid coinsurance penalties.

The functional building valuation option may be better if the insured would want to replace his existing building with a less costly one.
 Litigation Watch
Occurrence and Intentional Acts

The liability insurer brought an action against the insured and telephone call recipients for a declaratory judgment that it had no duty to defend or indemnify the insured in litigation to recover for the insured placing telephone calls to play pre-recorded message to solicit business. This case is Old Dominion Insurance Company v. Stellar Concepts & Design, 189 S0.3d 293 (2016).

The underlying lawsuit arose from a previously-settled class action lawsuit wherein the plaintiffs alleged that they were the recipients of phone calls with a pre-recorded message soliciting the plaintiffs to use Stellar for their business needs. The plaintiffs alleged that the calls caused damages because there was a loss of use of their telephones due to the phones being inundated with robotic telephone solicitations. In that trial, the court ruled in favor of the plaintiffs.

In response to that judgment, Old Dominion filed a declaratory judgment action that it had no duty to defend or indemnify its insured, Stellar Concepts & Designs. The Circuit Court ruled in favor of the insured and this appeal followed.

The District Court of Appeal of Florida, Fourth District, noted the argument of the insurer that there was no occurrence to trigger coverage and in the alternative, if there was an occurrence, the expected or intended injury exclusion applied to prevent any coverage. The insured countered that the calls qualify as an occurrence because the undisputed evidence showed that Stellar lacked specific intent to cause harm to a third party. The insured also claimed that the exclusion did not apply because, while the calls were intentionally placed, the damages were not intentionally caused.

The court reviewed various Florida rulings on the matter and said that reading the coverage provision of the policy together with the exclusionary clause could support a conclusion that coverage is provided for occurrences where the insured did not intend or expect to cause harm to third parties. In this case, the court found that there was no evidence to suggest that Stellar intended to cause an injury. Indeed, the testimony from Stellar's former owner revealed that he believed that he had the right to contact businesses and he had a good faith belief that the automated calls were lawful. The evidence demonstrated to the court that Stellar was not aware that it was acting in violation of any law and Old Dominion did not point to any evidence disputing Stellar's lack of intent to injure.

Therefore, because Stellar did not intend to cause an injury or break the law by placing the phone calls, the appeals court ruled that the trial court did not err in determining that the calls constituted an occurrence under the terms of the policy.

As for the expected or intended injury exclusion, the court said that the exclusion is limited to the express terms of the policy and does not exclude coverage for injuries more broadly deemed under tort law principles to be consequences flowing from the insured's intentional acts. In other words, injury or damage is caused intentionally within the meaning of an intentional injury exclusion clause if the insured has acted with the specific intent to cause harm to a third party. In this instance, the court noted, the damages at issue, loss of use of the phone lines, were consequences flowing from Stellar's intentional acts of placing the phone calls. Evidence showed that Stellar did not intend to harm the plaintiffs by placing the phone calls, but rather believed that it was in compliance with the law. Because the loss of use of the phone lines was not an intentional injury, the expected or intended injury exclusion does not apply.

The ruling of the trial court was affirmed. The phone calls involved an occurrence and the intentional injury exclusion did not apply.

Editor's Note: The District Court of Appeal of Florida rules that liability policies covering accidents apply to injury or damage caused by the insured's intentional acts as long as the insured did not intend to cause any harm.
 Fraud of the Week
Contractor Fraud – New Jersey
AMOUNT: $1.1 Million

Weeks after Hurricane Sandy terrorized the east coast, Price Home Group (PHG) became one of the original contractors approved by the state to rebuild New Jersey with their primary rebuilding program, the Reconstruction, Rehabilitation, Elevation, and Mitigation program (RREM), which is a tax-funded program. In order to participate as a contractor in the RREM program, the state must ensure that the company has the proper licensing, is registered to do business in the state, and hasn't been debarred from doing business with the government. Despite the founders of PHG providing false education information to the state, PHG was still awarded five home construction projects by the state, all of which were transferred to other contractors in the following year. Fifty-one independent homeowners chose PHG to help rebuild as their RREM contractors, only twenty-two homes were completed by the Price Home Group. The PHG claimed that a deposit would reserve a clients' modular home with the supplier, but the deposits were often used to pay for work and supplies on older contracts that had been neglected. All the while, the founders of the PHG were pulling thousands of dollars from the corporations' account and taking lavish vacations and purchasing brand new vehicles. PHG has been involved in at least fifteen lawsuits alleging breach of contract with customers. All three founders of PHG have declared bankruptcy or are otherwise insolvent.
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