In Great Plains Ventures, Inc. v. Liberty Mutual Insurance, the plaintiff owned several manufacturing companies.  Liberty Mutual issued an insurance policy on Great Plains Ventures (GPV)’s covered buildings and other property located in Wichita, Kansas.

The policy provided for payment of all risks of direct physical loss or damage attributable directly or indirectly to causes set out in the policy.

In spring 2013, a hail storm impacted northeast Wichita causing damage to the siding and HVAC units of the buildings, and also causing indentations to the metal roofs. GPV turned in a claim and Liberty Mutual hired engineers to inspect the property.

The engineers’ report found that the buildings did not show signs of “functional damage” but only “hail-caused indentations” that were “aesthetic in nature and not visible from the ground level.”  The engineers determined that the indentations did not compromise the roofs’ expected service life and did not warrant repair.

Liberty Mutual sent a letter stating that it disagreed with GPV’s claimed loss of over $4.3 million, and sent GPV $611,000 as partial payment for damage to the walls, doors, and rooftop tower.  This amount did not reflect compensation for repair of the roofs on three of the buildings.  GPV declined a request to submit to appraisal and filed suit in Federal District Court in Kansas.

Liberty Mutual argued that the policy was limited to hail indentations that impact the “roofs’ usefulness or function for normal purposes,” citing a Wisconsin case, Advance Cable Company v. Cincinnati Insurance Company, noting that the policy in the Wisconsin case also stated that it would “pay for direct physical loss” defined as “accidental loss or damage.”

In Advance Cable, the insurance company argued that the denting did not create a “loss or damage” because it was not visible from the ground level and did not affect the structural integrity or life of the roof.  Nonetheless, the Federal District Court in Wisconsin held that there can be no meaningful dispute that a physical alteration to the property occurred though it is merely cosmetic.

The policy in the Wisconsin case did not state that damage must reach some level of severity to trigger the coverage threshold, and based on those findings, the court granted summary judgment in favor of Advance Cable.  On appeal, the Seventh Circuit affirmed.

In the GPV case, the insurer attempted to distinguish Advance Cable based on a difference in policy language defining “direct physical loss” as “accidental loss or damage.”  Liberty Mutual argued that its policy did not define “loss” as “loss or damage” and the word “damage” is not included at all in the coverages section.  Liberty Mutual argued that the Advance Cable holding did not apply in the GPV case.

The court, however, found in GPV that the insuring agreement section of the policy unambiguously provides coverage for hail dents on a metal seam roof, since the defendant agreed to pay for risks of physical loss or damage.  Liberty Mutual also argued that the policy unambiguously requires a showing of functional damage to establish a loss.

The court noted that as a general rule, limitations, exclusions, and exceptions in insurance policies are construed narrowly and the insurer assumes the burden to define limitations in clear and specific terms.

The court also found that the phrase “covered loss” in the Liberty Mutual policy did not unambiguously limit coverage of real property to functional damage and therefore granted GPV summary judgment on the issue of whether the policy provides coverage for hail indentations to the metal roofs of the covered property.

Lastly, GPV argued it was entitled to summary judgment on the issue of attorney fees under K.S.A. §40-908. Liberty Mutual made a tender offer of over $611,000 before the commencement of the action. The declaratory judgment did not result in any monetary award in and of itself.

The court found that while it granted summary judgment on the issue of coverage, relief in favor of the insured did not entitle the insured to an award of monetary relief at this point on the issue of attorney fees, and therefore denied that part of plaintiff’s summary judgment motion.

By Kent M. Bevan of Dysart Taylor Cotter McMonigle & Montemore