Case Bulletin – The Supreme Court of Appeals of West Virginia Answers Two Certified Questions Related to Coverage for a Fire in a Vacant Building in Favor of Insurer
On April 26, 2017, the Supreme Court of Appeals of West Virginia (the “Court”) issued its decision in Ashraf, M.D. v. State Auto Property and Casualty Insurance Company, 2017 WL 1549582 (W. Va. 2017), holding: (1) that a Vacancy provision in a fire insurance policy which provides that an insurer is allowed to reduce by fifteen percent (15%) the stated amount of coverage payable for a total loss of a building is enforceable where the building has been vacant for more than 60 consecutive days; and (2) a Pollutant Clean Up and Removal provision in a fire insurance policy, which covers the expense of extracting pollutants from “land or water” at the insured premises, does not apply to asbestos testing and removal, where the asbestos removed is located within the fire-damaged structure.
In 1997, Dr. Ashraf and his wife purchased a building in Marion County, West Virginia. The building was renovated and opened as an assisted living facility. The facility closed in 2006, and the building remained vacant thereafter. On October 29, 2012, a fire occurred in the building, which rendered the building a total loss. Subsequently, Dr. Ashraf demolished and removed the debris of the fire-destroyed building. The building was insured under a commercial fire insurance policy issued by State Auto Property and Casualty Insurance Company (“State Auto”). The policy contained a fifteen percent (15%) reduction of loss under its Vacancy provision, and separate Debris Removal and Pollutant Clean Up and Removal provisions. Following its investigation of the claim, State Auto reduced the coverage for the loss by fifteen percent (15%) after determining that the building had been vacant for more than 60 consecutive days. Additionally, State Auto covered the losses incurred with the debris removal, but did not extend coverage for pollutant removal; specifically, it did not cover the losses related to the removal and testing of asbestos from within the building.
On August 28, 2014, Dr. Ashraf filed a declaratory judgment action against State Auto in the Circuit Court of Marion County, WV. The complaint alleged, inter alia, that State Auto improperly reduced the loss amount by fifteen percent (15%), and Dr. Ashraf was entitled to the full policy amount for loss of the building, and that he was entitled to coverage for the losses incurred for the removal and testing of asbestos under the policy’s Pollutant Clean Up and Removal provision. The parties filed motions for summary judgment, and, on November 3, 2016, the Circuit Court held the motions for summary judgment in abeyance and certified the below two questions to the Court. The Circuit Court answered both of questions in favor of State Auto.
In beginning its analysis of the certified questions, the Court noted that its review as to the two questions of law was de novo. The first question asked, where there is a covered total loss by a fire insurance policy, may an insurer reduce the policy’s stated amount of coverage for the insured premises by fifteen percent (15%) pursuant to a Vacancy provision in the policy. The Court noted that the subject policy was a valued policy under W. Va. Code § 33-17-9. The State Auto policy included two vacancy provisions, one allowed for a total denial of coverage where there was a vacancy in excess of 60 consecutive days, and a second provision merely reduced the covered loss amount by fifteen percent (15%) where there was a vacancy for more than 60 consecutive days. The Court noted that the valued policy statute has been in operation for many years. It further explained its rationale in requiring insurers to be liable for the total loss caused by a fire, citing its decision in Ritchie County Bank v. Fireman’s Ins. Co., 47 S.E. 94 (W. Va. 1904). In Ritchie, the Court adopted the rationale of Kentucky and sought to prevent the “evil” of overvaluation of insurance by requiring insurers to pay the full amount for the policies for which they write and collect premiums. However, the Court noted that there were situations where the valuation set forth in the policy will not be binding. In this case, the Court noted that the value of the building was not at issue. Additionally, State Auto was not denying coverage for the loss, but rather reducing coverage as an anticipatory limitation regarding the risk of loss for a structure with an extended period of vacancy. Accordingly, as to question number one, the Court held that the vacancy provision does not conflict with the valued policy statute, and that an insurer is allowed to reduce by fifteen percent (15%) the stated amount of coverage payable for the total loss of a building destroyed by a fire where the building had been vacant for more than 60 consecutive days.
The second question asked, whether the policy’s Pollutant Clean Up and Removal provision provides coverage, in excess of the Debris Removal coverage, for an insured’s expense of removing and testing the asbestos in a fire-destroyed building. The Pollutant Clean Up and Removal provision states that State Auto will pay the expense to extract “pollutants” from land or water at the premises if the discharge, dispersal, seepage, migration, release or escape of such pollutants is caused by a covered loss. The coverage does not apply to costs associated with testing or monitoring the existence of a pollutant. The policy defines “pollutant” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”
Dr. Ashraf argued that the removal costs were incurred in extracting the asbestos from land or water, inasmuch as the building is part of the land. He further argued that the Pollutant Clean Up and Removal provision is ambiguous and, under West Virginia law, ambiguous terms in insurance contracts are to be construed against the insurer and in favor of the insured. State Auto contends that extraction of asbestos from land or water was not the case here, since the asbestos was confined to the components of the building. In answering this question in favor of State Auto, the Circuit Court cited a case from the U.S. District Court for the Southern District of California. In Ruffin Road Venture Lot IV v. Travelers Property Casualty Co. of Am., 2011 WL 2463291 (S.D. Cal. June 20, 2011), the District Court concluded that a similar Pollutant Clean Up and Removal provision did not apply to an air conditioning system that was damages by mud, rocks and other debris. The District Court noted that the alleged contamination was contained within the air conditioning system, and the mud, rocks and other debris did not fall within the definition of pollutants.
In this case, the Court pointed out various areas of the policy where “land” is distinguished from the building. It further noted that under the plain language of the policy, there were clear distinctions between “land or water” and the insured building. The Court determined that a pollutant had not affected the “land” since the asbestos was within the damaged building. Accordingly, as to question number two, the Court held that a Pollutant and Removal provision in a fire insurance policy, which covers the expense of extracting pollutants from “land or water” at the insured premises, does not apply to asbestos testing and removal, where the asbestos removed is located within the fire-damaged structure. The Court remanded the matter to the Circuit Court of Marion County for further proceedings.