You Only Get What You Pay For

RTFP - Court Reads the Full Policy

Mark Scafella appealed the order granting Erie Insurance Company ("Erie") and Stanley Geho summary judgment in the underlying declaratory judgment action.

In Mark Scafella v. Erie Insurance Company and Stanley Geho, No. 22-ICA-173, West Virginia Intermediate Court of Appeals (November 14, 2023) the West Virginia Court of Appeals resolved the dispute by reading the full policy.

FACTUAL BACKGROUND

In 2017, Mr. Scafella purchased the Terra Alta property known as "Country Chapel Farm" ("Farm"). The property included a residential home, a large barn with an adjacent milk house, several sheds or smaller barns, and a small country church.

The underlying case arises from a fire on Scafella's real property. The insurance claims Scafella made following that fire loss did not provide the result he desired and litigation followed.

THE POLICY

The property was insured under a homeowner's policy of insurance issued by Erie, identified as the "ErieSecure Home Insurance Policy" ("policy"). The policy included other structures coverage limits of $101,400, and coverage for personal property of up to $380,250. The PROPERTY PROTECTION-SECTION 1, OUR PROMISE- Other Structures provision of the policy contained a standard business pursuits exclusion, which excluded loss to property “1. used in whole or in part for "business" purposes …; or 2. used to store "business" property.”

It was undisputed that Mr. Scafella's then fiance (Ms. Lisa Smith), obtained two insurance quotes from Erie for the property, one including an incidental farming endorsement and one without the endorsement. Ultimately, Mr. Scafella chose the insurance quote that did not include the incidental farming endorsement, a less costly option. It is further undisputed that in completing his application for insurance with Erie for the property at issue, that Mr. Scafella averred that there were no farm animals or pets on the premises and that he did not conduct "any business or occupational pursuits at the premises."

IT IS NOT NICE TO LIE TO YOUR INSURER

Despite indicating to the contrary in his application for insurance, Mr. Scafella does not deny that after taking possession of the property, he began operating a business out of the milk house. That business, Olivia's, LLC ("Olivia's"), was a retail store selling meat, cheese, and sandwiches. Prior to the fire, Mr. Scafella alleges that he had begun to renovate the large barn structure into a catering hall and restaurant (to be known as Sophie's Serendipity, LLC), as part of his plan to develop the farm into a destination wedding venue.

There is no question that the February 2, 2019, fire caused significant structural damage to the large barn and resulted in the loss of numerous items of Mr. Scafella's personal property, which were stored in the large barn structure. Although the milk house was adjacent and physically abutted the barn, Mr. Scafella claims that it was not affected by the fire and that the origin of the fire had nothing to do with the business operations therein.

THE CLAIMS

Shortly after the fire loss, Mr. Scafella filed an insurance claim with Erie for that loss. Property adjuster Stanley Geho was assigned by Erie to handle the claim. As part of his investigation, Mr. Geho visited the fire-damaged property and drew a diagram that depicted the milk house as an addition to the barn structure with an interior doorway connecting the two areas. Mr. Geho's depiction of the premises was consistent with a statement made by Ms. Smith who, during a recorded statement taken by Mr. Geho, described Olivia's as being "in a different part of the [barn] building," but "in the barn itself."

Erie denied the portion of the fire loss claim for the structure of the large barn, under the business pursuits exclusion of the Other Structures provision of the policy, as Mr. Scafella was operating a business (Olivia's) out of the structure.

The circuit court found that the "milk house and the barn are one structure" and the court concluded that the evidence on the record did not support Mr. Scafella's claims.

DISCUSSION

The Court of Appeals concluded that Mr. Scafella failed to meet his burden to establish waiver, the court of appeals found no error in the circuit court's award of summary judgment to Erie and Mr. Geho.

Other Structures Provision

The Court of Appeals concluded that the large barn area where the fire occurred and the milk house (where Mr. Scafella operated Olivia's) are the same structure. In fact, when providing a recorded statement to Erie after the fire loss, Ms. Smith identified the barn and the milk house as being part of one building.

Claw-Back Provision

Here, Mr. Scafella represented that the property within the large barn was his personal property to collect $67,640.80 under the personal property coverage in his Erie policy, possibly to avoid the $2,500.00 limit to "business" personal property under the SPECIAL LIMITS - Personal Property Coverage section of policy.

The Court of Appeals concluded that to permit Mr. Scafella to change his classification of the property at issue to recover under corresponding portions of the policy is impermissible and would permit him a windfall and coverage for which he did not pay. Finding no error the trial court's decision was affirmed.

ZALMA OPINION

When a person is given a choice of available coverages and chooses the one less expensive he or she is gambling that the loss will fit within the lesser coverages, and misrepresents the facts at the site of loss to obtain the less expensive coverage the insured is committing fraud. After the loss Scafella attempted to change the policy he purchased into the policy he refused to pay for, with multiple legal machinations that the courts of West Virginia refused to honor. The moral: always tell the truth to your prospective insurer and never buy a policy that does not provide coverage for the risks the property faces.

(c) 2023 Barry Zalma & ClaimSchool, Inc.

Please tell your friends and colleagues about this blog and the videos and let them subscribe to the blog and the videos.

Subscribe to Excellence in Claims Handling at locals.com at https://zalmaoninsurance.locals.com/subscribe or at substack at https://barryzalma.substack.com/publish/post/107007808

Go to Newsbreak.com  https://www.newsbreak.com/@c/1653419?s=01

Follow me on LinkedIn: www.linkedin.com/comm/mynetwork/discovery-see-all?usecase=PEOPLE_FOLLOWS&followMember=barry-zalma-esq-cfe-a6b5257

Daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://podcasters.spotify.com/pod/show/barry-zalma/support; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg;  Go to the Insurance Claims Library – http://zalma.com/blog/insurance-claims-library.