In Grebow v. Mercury Insurance, published on October 23, 2015, the Court of Appeals rejected a homeowners’ claim that an implied duty to reimburse costs incurred by the homeowner to prevent an insurable loss is imposed on a homeowners’ insurance carrier. At first blush, this decision may appear unfair, since the homeowners efforts saved the carrier money in the long run. However, the Court justified its conclusion by stating that the homeowners’ argument would convert a loss policy into a maintenance agreement, which is not what the parties intended when the policy was purchased.
In Grebow, the insureds owned a home in Tarzana, California. The back deck of the home was in imminent danger of collapse due to corrosion and decay of supporting steel beams and posts. The homeowners gave notice to their homeowners’ insurance carrier, Mercury, and hired a contractor to shore up and remediate the deck, at a cost of $91,000. The homeowners made a claim in this amount with Mercury.
Mercury denied the claim because its policy only covered an actual collapse, and its mitigation coverage only covered mitigation costs incurred after an actual collapse. On appeal, the homeowners argued that their costs incurred in preventing an imminent collapse were recoverable, despite the contract language, under a common law duty on their part to prevent, if possible, an imminent insurance loss, and a corresponding duty of the insurer to reimburse the insured for such mitigation costs.
On appeal, the Court acknowledged the merit of the homeowners’ argument, citing the following language from a 1960 Pennsylvania decision:
“It would be a strange kind of argument, and an equivocal type of justice, which would hold that the defendant would be compelled to pay out, let us say, the sum of $100,000 if the plaintiff had not prevented what would have been inevitable, and yet not be called upon to pay the smaller sum which plaintiff actually expended to prevent an imminent disaster . . . It is folly to argue that if a policy owner does nothing and thereby permits the piling up of mountainous claims at the eventual expense of the insurance carrier, he will be held harmless of all liability, but if he makes a reasonable expenditure and prevents a catastrophe he does so at his own cost and expense.” Leebov v. United States Fidelity & Guaranty (Pa. 1960) 165 A.2d 82, 84.
The Court, nevertheless, declined to recognize an implied right of recovery for costs to prevent an insurable loss, e.g. the homeowners’ costs in this case to prevent their deck from collapsing, in the Mercury homeowners policy. The policy clearly and explicitly confined recovery of mitigation costs to those incurred after the insurable loss occurred. To read into the policy coverage for the costs to prevent an insurable loss from occurring would be to go against the clear language and intent of the policy.
The Court pointed out that the difficulty with the homeowners’ argument, despite its superficial appeal, lies in where to draw the line. The homeowners’ argument, taken to its logical conclusion, would convert a homeowner loss policy into a home maintenance policy:
“To imply an obligation to reimburse an insured for preventive acts would result in uncertainty as to when an obligation can be enforced. For example, if an insured has a hole in his or her roof, should he or she be able to obtain reimbursement for preventing water damage by fixing the roof? If a tree is leaning ominously towards a house, is the cost of removing the tree reimbursable? All maintenance is geared towards preventing an insurable loss. To have to litigate the point at which maintenance becomes a reasonable step to prevent an imminent insurable loss is an undesirable way to deal with insurance coverage. Moreover, if insurers are responsible for such reimbursement, they will either raise the cost of insurance or attempt to insert even more explicit clauses precluding such exposure.”
In light of this decision, it appears the homeowners’ best course of action, when confronted with a condition that may give rise to damage to their home, is to alert their insurance carrier so the carrier may, if it chooses, repair the condition to prevent the loss. If the carrier declines to repair, however, the homeowners must “Let if fall!” if they wish to receive compensation.