Insurance Law
Agents
Valuation
Total Loss: Measure of Recovery
Nebraska’s Valued Policy Statute
Statute Interpretation
Procedure: Possible Actions: Declaratory Judgment Action, Breach of Contract Action, Action for Specific Performance, Suit in Equity to Reform the Policy, Suit Alleging the Intentional Tort of Insurer Bad Faith, or Any Combination of Such Actions
Nebraska Law
Callahan filed this negligence action against insurer and its agent, seeking to recover damages after their home was destroyed in a fire. The district court granted summary judgment in favor of the insurer and its agent. Although our reasoning differs, we affirm the district court’s judgment.
In 2011, the Callahans purchased a Shelter Mutual Insurance Company (Shelter) homeowners insurance policy through a licensed insurance producer, Jeb Brant. Brant is a “captive” Shelter agent and exclusively sells Shelter insurance. Before the policy was issued, Brant used a reconstruction cost calculator tool to estimate the cost of rebuilding the Callahans’ home, using information obtained from the Callahans and from the Clay County assessor’s website. Brant prepared a report that estimated reconstruction costs at $250,481.
(…) It is undisputed that they subsequently purchased a replacement cost policy insuring their home for $250,481.
(…) In May 2019, the parties agree the Callahans’ home was totally destroyed by an electrical fire. The Callahans submitted a claim on the policy with Brant’s assistance, and it is undisputed that Shelter subsequently paid the Callahans all amounts due and owing under the policy. The Callahans allege that when they subsequently obtained a quote for the cost of rebuilding their home, they learned “the cost to rebuild was substantially higher than the amount of insurance coverage.”
In April 2020, the Callahans filed a complaint against Shelter and Brant, styled as claims for breach of contract, negligence, and negligent misrepresentation. The Callahans later stipulated to the dismissal of their breach of contract claim. Their remaining claims generally allege that Brant negligently advised them on the estimated replacement value of their home and negligently misrepresented the adequacy of their policy limits in the event of a total loss. The Callahans contend they reasonably relied on Brant’s statements and, as a result, sustained damages “in an amount to be proven at trial.” And they alleged Shelter was liable for Brant’s misrepresentations under a theory of respondeat superior.
The district court ultimately concluded the Callahans could not prevail on such a claim. It reasoned that even accepting as true the Callahans’ claims that Brant provided false information regarding the replacement value of their property and the adequacy of their policy limit, the Callahans could not have reasonably relied on such information because, under the terms of the policy and under Nebraska law, it was the Callahans’ duty and responsibility to know their coverage needs and to request the amount of coverage they wanted. The court also found the evidence was undisputed that the Callahans never asked Brant to provide them with a higher amount of coverage on their home or to procure any supplemental coverage.
See, Hobbs v. Midwest Ins., Inc., 253 Neb. 278, 570 N.W.2d 525 (1997); Hansmeier v. Hansmeier, 25 Neb. App. 742, 912 N.W.2d 268 (2018). (Fn. 3).
Nebraska’s valued policy statute conclusively establishes the true value of the Callahans’ loss in the event the property is wholly destroyed, and it precludes them from offering evidence that the true value was something other than the amount for which the home was insured.
Nebraska’s valued policy statute is currently codified at Neb. Rev. Stat. § 44-501.02 (Reissue 2021), and it provides: Whenever any policy of insurance is written to insure any real property in this state against loss by fire, tornado, windstorm, lightning, or explosion and the property insured is wholly destroyed without criminal fault on the part of the insured or his or her assignee, the amount of the insurance written in such policy shall be taken conclusively to be the true value of the property insured and the true amount of loss and measure of damages.
We discussed the public policy rationale behind the valued policy statute in Heady v. Farmers Mut. Ins. Co. There, we stated: “It is a well-known fact that it has been the practice of some fire insurance companies to insure property at any value the insured cared to put thereon without any investigation as to such value. The natural impulse of the insured was toward amply sufficient or even over valuation. The higher the valuation, the greater the premium. If there were no loss, the insurance company profited through the high valuation. If loss occurred, the insurer would contest the value or amount of recovery and the insured might recover less than the value stipulated in the policy, although he had honestly estimated the value at the time the insurance was taken and had paid premiums on the basis of such estimated value. This situation produced dissatisfaction and litigation. It was to correct this condition, that the valued policy statute was enacted. . . . Also, overvaluation was a temptation to commit arson, which might endanger lives or other property. The statute is not merely for the protection of the insured but ‘rests on considerations of public policy, and it is probable that the insured could not, even by express contract, relinquish the benefit of its provisions.’ . . .
Heady v. Farmers Mut. Ins. Co., 217 Neb. 172, 349 N.W.2d 366 (1984).
Heady expressly held that “the valued policy statute precludes the insurer from asserting as a defense to liability on its fire insurance contract the fact that its insured either affirmatively misrepresented or failed to disclose the actual value of the subject property.” Heady did, however, allow the insurer to offer evidence of a lower value for the limited purpose of showing the insured had a motive to commit arson, because such use was consistent with the valued policy statute.
We said in Heady that “‘neither party’” could evade the valued policy statute by avoiding the duty to investigate the value of the property before agreeing to a binding determination of value. This mutual duty encourages both the insurer and the insured to conduct a thorough and independent investigation into the value of the property to be insured before agreeing on a binding amount of coverage to be written into the policy, because in the event of a total loss, that policy limit becomes the conclusive measure of damages.
Malm v. State Farmers Ins. Co., 125 Neb. 594, 251 N.W. 260 (1933) (after total loss, insurer could not avoid paying policy limits by claiming insured falsely misrepresented actual value of insured building) (Fn. 31).
A suit on the policy after a total loss can take many forms—a declaratory judgment action, a breach of contract action, an action for specific performance, a suit in equity to reform the policy, a suit alleging the intentional tort of insurer bad faith, or any combination of such actions, just to list a few. And neither the plain language of the valued policy statute, nor any of its public policy objectives, confines its application to a single type of legal action between the insurer and insured. Construing the valued policy statute in a way that restricts its application exclusively to breach of contract actions would require us to read language into the statute that is not there, would undermine the statutory objectives, and would not place on the statute a reasonable construction that best achieves its recognized purpose. We thus decline the Callahans’ invitation to adopt a construction that restricts Nebraska’s valued policy statute to only certain actions.
(…) We are not suggesting that the valued policy statute will apply to preclude every claim of negligent misrepresentation by an insured against an insurer. But when the alleged misrepresentation pertains to the true value of the insured loss, the valued policy statute is plainly implicated.
(Nebraska Supreme Court, May 12, 2023, Callahan v. Brant, Docket No. S-21-1006, Cite as 314 Neb. 219, Per Curiam, Three Dissenters)
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