Columbia Mut. Ins. Co. v. Sanford

COLUMBIA MUTUAL INSURANCE COMPANY v. Danny
SANFORD and Gail Sanford

CA 95-244                                          ___ S.W.2d ___

                  Court of Appeals of Arkansas
                           Division II
                Opinion delivered April 24, 1996


1.   Insurance -- agreed upon terms of contract must not be
     contrary to statute or public policy -- acceptance by insured
     deemed approval of policy conditions. -- An insurer may
     contract with its insured upon whatever terms the parties may
     agree upon that are not contrary to statute or public policy;
     the insured, by accepting the policy, is deemed to have
     approved it with all conditions and limitations expressed
     therein which are reasonable and not contrary to public
     policy. 

2.   Insurance -- rebuilding clause not against public policy --
     appellant's reliance on clause unreasonable in this instance.
     -- While the rebuilding clause contained in the policy was not
     against public policy, where appellees submitted a timely
     estimate for repairs and appellant, having received the
     estimate months earlier, made no offer to pay that amount
     until almost one month before the end of the period allowed in
     the rebuilding clause for rebuilding the damaged structure,
     thereby forcing the insured to either comply in merely thirty
     days with the rebuilding condition or accept a forty percent
     reduction in coverage, appellant's reliance on the rebuilding
     clause was unreasonable.


     Appeal from Jackson Circuit Court; Harold Erwin, Judge;
affirmed.
     Daggett, Van Dover & Donovan, by:  Robert J. Donovan, for
appellant.
     Paul Petty, for appellee.

     Wendell L. Griffen, Judge. 
        
*ADVREP*CA9*              DIVISION II




                                   CA 95-244

                                                April 24, 1996


COLUMBIA MUTUAL INSURANCE CO.      AN APPEAL FROM JACKSON         
                   APPELLANT       CIRCUIT COURT
                                   NO. 92-75

V.                                 HON. HAROLD ERWIN, JUDGE


DANNY SANFORD AND GAIL SANFORD            
                APPELLEES          AFFIRMED





                   Wendell L. Griffen, Judge.

     Columbia Mutual Insurance Company has appealed the decision by
the Jackson County Circuit Court finding in favor of Danny and Gail
Sanford on their motion for summary judgment in their breach of
contract lawsuit based on an insurance policy.  Appellees suffered
a fire loss to a poultry house on January 14, 1992.  The house was
covered by an insurance policy issued by appellant.  Appellees
filed a claim for total loss.  Appellant denied the claim relying
upon a þrebuilding clauseþ in the policy that provided that the
amount of insurance applying to a covered structure shall be
reduced to sixty percent of the face value if the damaged structure
is not repaired or replaced at the same location within twelve
months of the loss date.  Consequently, appellant confessed
judgment and paid appellees $42,000, plus pre-judgment interest. 
Appellant also confessed judgment for an additional $23,358.36
contingent upon appellees' compliance with the rebuilding clause. 
After the parties submitted the dispute to the trial court on
stipulated facts,  the trial court denied appellantþs summary
judgment motion.  Instead, it entered judgment in favor of
appellees and against appellant for $23,358.36, plus accrued
interest and an attorneyþs fee of $5,000, based upon its conclusion
that the rebuilding clause is contrary to public policy.  This
appeal followed.  We have concluded that the appellees were
entitled to judgment as a matter of law, but we reach that result
for reasons different from the trial court.  Therefore, we affirm
the judgment for appellees.
     Appellees purchased farm property near Bradford, Arkansas, in
October 1989, and purchased insurance from appellant shortly
afterwards to cover two poultry houses on the property.  One of the
houses was partially destroyed by fire on January 14, 1992, along
with all of the chicken house equipment within the part that was
damaged.  Appellees made demand upon appellant for $70,000, the
face value of their coverage under the insurance contract, but
their demand was eventually denied by appellant based on the
language of the þrebuilding clauseþ in their policy which reads as
follows:
     In consideration of the premium, it is a condition of
     this insurance that each dwelling or other building
     structure covered under this policy is subject to the
     provisions of this Rebuilding Clause.  In the event of
     loss or damage by peril insured against to any such
     dwelling or other building structure:


          (a) if the loss or damage is not repaired or
     replaced by the insured for the same Occupancy and use
     within twelve (12) months of the date of loss or damage,
     at the same location described in the policy, the amount
     of insurance applying to such dwelling or other building
     structure shall be reduced to 60% of such amount and the
     liability of the Company shall not exceed the smaller of
     (1) the amount for which it would be liable in the
     absence of the Rebuilding Clause, or (2) the amount of
     insurance applying to such dwelling or other building
     structure reduced to 60% of such amount as specified
     above;

          (b) if the loss or damage is repaired or replaced by
     the insured for the same occupancy and use within twelve
     (12) months of the date of the loss or damage, at the
     same location described in the policy, the liability of
     this Company shall not exceed the smallest of (1) the
     amount of insurance applying to the damaged or destroyed
     dwelling or other building structure, or (2) the actual
     cash value of that part of the dwelling or other building
     structure damaged or destroyed, or (3) the amount
     actually or necessarily expended in repairing or
     replacing the damaged or destroyed dwelling or other
     building structure.

     Appellant contends that appellees did not comply with the
rebuilding clause because they did not rebuild the damaged
structure within twelve months of the January 14, 1992, fire loss. 
Accordingly, appellant tendered payment on December 11, 1992, for
$42,000, plus pre-judgment interest, based on its view that the
rebuilding clause provided that coverage would be reduced to sixty
percent of the policy face value.  Appellant also confessed
judgment for an additional $23,358.36, the amount it calculated
appellees would have been due upon complying with the rebuilding
clause.
      An insurer may contract with its insured upon whatever terms
the parties may agree upon which are not contrary to statute or
public policy.  Shelter Gen. Ins. Co. v. Williams, 315 Ark. 409,
867 S.W.2d 457 (1993).   The insured, by accepting the policy, is
deemed to have approved it with all conditions and limitations
expressed therein which are reasonable and not contrary to public
policy.  AETNA Ins. Co. v. Smith, 263 Ark. 849, 568 S.W.2d 11
(1978) (emphasis added).  While we  do not find the rebuilding
clause itself to be against public policy, we do find the
appellantþs reliance on the clause to be unreasonable under the
facts of this case.  
     Although appellees submitted a timely estimate for $63,952 in
repairs, appellant made no offer to pay that amount until December
11, 1992, almost one month before the end of the period allowed in
the rebuilding clause for rebuilding the damaged structure.  It is
clear that when appellant confessed judgment relying on the
rebuilding clause, the prescribed time for rebuilding had not yet
elapsed.  It is also clear that appellant had received information
months beforehand that would have allowed it, under any reasonable
analysis, to accept the claim so that appellees could begin to
rebuild without risking a reduction in the amount that would be
paid on their loss for failure to comply with the rebuilding
condition.  Using appellantþs reasoning, an insurer may withhold
payment on an covered claim until the þeleventh hourþ -- in this
case the eleventh month -- and thereby force the insured to either
comply in merely thirty days with the rebuilding condition or
accept a forty percent reduction in coverage.  We find appellantþs
reliance on the rebuilding clause to be unreasonable in this case. 
     Affirmed. 
     Jennings, C.J., and Robbins, J., agree.