Pope v. Farmers Insurance Co., Inc.

Pope v. Farmers Insurance Co., Inc.
1998 OK 77
962 P.2d 1284
69 OBJ 2625
Case Number: 90009
Decided: 07/14/1998
Mandate Issued: 08/14/1998
Supreme Court of Oklahoma

RUSSELL POPE, SR., and DARNIE POPE, Plaintiffs,
v.
FARMERS INSURANCE COMPANY, INC. Defendant.

[962 P.2d 1285]
CERTIFIED QUESTIONS OF LAW FROM THE UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OKLAHOMA

¶0 The residence of the plaintiffs was damaged by fire. Plaintiffs' had homeowners insurance with a limit of $160,000.00. Plaintiffs submitted a claim to the defendant in the amount of $128,498.59, the estimated cost of repair. Defendant denied liability for repair costs until repair or replacement is completed. Plaintiffs filed suit in the federal district court. The Honorable Terry C. Kern, Chief Judge, United States District Court for the Northern District of Oklahoma certified two questions to this Court. Pursuant to

1. Whether a replacement requirement in a homeowner's fire insurance policy may be voided as unconscionable?

REFORMULATED QUESTION ANSWERED.

Gregory G. Meier, Donald O'Dell, MEIER, COLE & O'DELL, P.A.,Tulsa, Oklahoma, for Plaintiffs.

Jerry Fraley, W. R. Cathcart, Virginia Cathcart Holleman, CATHCART, GOFTON & FRALEY, Oklahoma City, Oklahoma, for Defendant.

Larry Derryberry, Robert N. Naifeh, Jr., Gary L. Levine, DERRYBERRY, QUIGLEY, SOLOMON & NAIFEH, Oklahoma City, Oklahoma, for Amicus Curiae, American Insurance Association.

ALMA WILSON, Justice:

¶1 Pursuant to

1. Whether a replacement requirement in a homeowner's fire insurance policy is unconscionable?

¶2 We conclude that the equitable concept of unconscionability is not applicable to the interpretation of the provisions of a fire insurance policy issued pursuant to

¶3 The certifying order sets forth the following undisputed facts. The residence of the plaintiffs (Popes) was partially destroyed by fire. The Popes had replacement value insurance on the dwelling with a policy limit of $160,000.00 issued by defendant (Farmers) in effect at the time of the fire. The Popes estimate the repair costs at $128,498.59. The damaged dwelling has not been repaired. Farmers rejected the Popes claim for estimated repair costs. Farmers estimated the actual cash value of the loss to be $64,000.00 and issued a check to the Popes in that amount. The Popes accepted the check, specifically retaining the right to submit the disputed amount of the claim to appraisal or litigation.

However, if the cost to repair or replace is more than $1,000 or more than 5% of the limit of insurance on the damaged or destroyed building, whichever is less, we will pay no more than the actual cash value until repair or replacement is completed.

¶4 The certification order and the briefs of the parties focus primarily upon Coblentz v. Oklahoma Farm Bureau Mutual Insurance Co.

¶5 In Bratcher v. State Farm Fire and Casualty Company,

REFORMULATED QUESTION ANSWERED.

HODGES, LAVENDER, SIMMS, HARGRAVE, OPALA, WILSON, and WATT, JJ., concur.

KAUGER, C.J., and SUMMERS, V.C.J., concur in result.

FOOTNOTES

1 The two questions certified to this Court are:

1. Is a replacement value clause in an insurance contract which allows the insurer to pay actual cash value at the time of loss and reserving replacement value payment until repairs or replacements have taken place unconscionable or void as a matter of public policy in Oklahoma?

2. If the Supreme Court were to uphold the Coblentz opinion, is that decision distinguishable when an insurer offers to pay replacement cost value if the insured executed an agreement with a contractor to replace or repair a damaged dwelling?

We reformulate the first question. Because we hold the critical policy clause in issue is not unenforceable as "unconscionable," the second question need not be answered.

2 According to the certifying order, there are material issues of fact to be settled by the trier of fact in determining the actual cash value and the replacement value of the loss.

3 1995 OK CIV APP 126, 915 P.2d 938. The briefs of Farmers and the amicus, American Insurance Association, assert error in the reasoning of Coblentz because the clause requiring the homeowner to repair or replace the damage before recovery of replacement cost protects against fraud and prevents a windfall to the homeowner. The Popes answer that they paid premiums based on replacement value and that the clause requiring them to complete repair or replacement before recovery of the insurance they paid for is unconscionable, or, the clause is ambiguous in the context of the entire loss settlement condition.

4 1995 OK CIV APP 126, at ¶1, 915 P.2d at 939.

5 1976 OK 33, 548 P.2d 1014. Barnes considered the allowable interest rate on a loan governed by the Uniform Consumer Credit Code, 14A O.S.1971, §§ 1-101 et seq. Upholding the bargained-for interest rate, Barnes reviewed the unconscionability provisions in the Uniform Consumer Credit Code and the equitable concept of unconscionability applicable to contract provisions entered into due to fraud and deceit.

6 1998 OK 63, ___ P.2d ___, handed down June 30, 1998.