NO. 91-213
IN THE SUPREME COURT OF THE STATE OF MONTANA
1992
FARMERS UNION MUTUAL INSURANCE COMPANY,
Plaintiff and Respondent,
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GARY OAKLAND, individually and as Personal
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Representative of the Estate of LORETTA OAKLAND,
d/b/a Oakland Holding Company,
Defendants and Counterclaimants and Appellants.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable Robert W. Holmstrom, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
James A. Poore, 111, Douglas A. Buxbaum and Patrick
M. Sullivan; Poore, Roth and Robinson, P.C.,
Butte, Montana
For Respondent:
James L. Jones: Dorsey and Whitney, Billings,
Montana
Submitted on Briefs: October 10, 1991
Decided :
Filed:
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Clerk
Justice Terry N. Trieweiler delivered the opinion of the Court.
On July 20, 1988, Farmers Union Mutual Insurance Company filed
a declaratory judgment action against Gary and Loretta Oakland in
the Thirteenth Judicial District Court in Yellowstone County. The
District Court held that the insurance policy issued to the
Oaklands by Farmers Union did not require Farmers Union to pay for
additional costs related to the removal of materials containing
asbestos during reconstruction of the insureds' property. Gary
Oakland appeals. We reverse.
The issue on appeal is whether the District Court erred in
holding that a "code exclusion" clause in the insurance policy
relieved Farmers Union of any obligation to pay additional costs
forthe removal of debris fromthe insured's fire-damaged building,
when the cost of removal was increased because of regulations
related to the removal of materials that contain asbestos.
The Oaklands purchased the Broadwater Center, a commercial
property in Billings, on November 1, 1979. The Broadwater Center
was an older building, and it contained asbestos pipe insulation
and floor tile. On October 1, 1986, the Oaklands purchased a fire
and casualty insurance policy for the Broadwater Center from
Farmers Union. On January 4, 1988, a fire damaged the insured
property.
Gary Oakland immediately notified Farmers Union of the loss.
Farmers Union retained an independent adjuster to handle the claim.
Oakland then hired his own adjuster. The adjusters disagreed on
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how to obtain reconstruction bids from contractors. In addition,
they disagreed about whether the "code exclusion" clause in the
insurance policy relieved Farmers Union of the obligation to pay
the higher costs associated with removal and disposal of debris
that contained asbestos.
Consequently, in mid-February of 1988 Farmers Union decided to
submit the matter to an appraiser selected by each party and an
umpire selected by the appraisers. On May 15, 1988, the umpire
determined that the total loss was worth $773,020. The umpire's
award attributed $70,540 to the cost of asbestos removal.
Almost immediately a dispute arose on the question of whether
the appraisers had subtracted a deduction for depreciation on
certain items as required by the insurance policy. Farmers Union
therefore sought a declaratory judgment regarding the asbestos and
depreciation issues. The Oaklands filed a counterclaim asserting
that Farmers Union had acted in bad faith by unnecessarily
prolonging the adjustment process.
Both parties moved for summary judgment on the asbestos,
depreciation, and bad faith issues. On January la, 1990, the
District Court entered an order disposing of several pending
motions. This order denied the pending summary judgment motions on
the asbestos and depreciation issues. However, the court appended
a memorandum to the order in which it stated:
In connection with the asbestos issue, a question has
been raised as to whether the Seventy Thousand Five
Hundred Forty and No/100ths Dollars ($70,540.00) figure
is the amount determined to be the costs of removing the
asbestos material or is the amount in excess of what it
would have cost to remove the material had it not
contained asbestos. The Court has concluded [Farmers
Union] is not required to pay any increased cost of
repair or reconstruction by reason of the statutes and
ordinances regulating asbestos and will permit a
deduction from the total costs of repair or replacement
of any such increased cost.
Subsequently, the parties settled the depreciation and bad faith
issues out of court, leaving only the asbestos issue for final
decision. The District court then issued a final order and
judgment declaring that Farmers Union was entitled to a deduction
for the increased cost of asbestos removal. This appeal is
therefore limited to the asbestos issue.
According to Oakland, the materials at issue here are of two
types: (1)materials containing asbestos that were directly damaged
in the fire; and (2) undamaged materials containing asbestos that
must be torn out in order to gain access to damaged materials. He
does not seek compensation for the removal of any asbestos that it
was not necessary to remove as part of the repair process.
Farmers Union bases its position on the following clauses in
the insurance policy:
111. EXCLUSIONS
Section I [the coverage provision] does not apply
to loss or damage caused by or resulting from:
1. Enforcement of any ordinance or law,
either directlv or indirectly, reaulatinq
the construction, reDair or demolition of
buildinss or structures. [ Emphasis
added. ]
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and
Business Pac Deluxe Policy Declarations
...
[Farmers Mutual] . .
. does insure . ..
[Gary and
Loretta Oakland] . ..
to the extent of the actual
cash value of the property at the time of loss, but
not exceeding the amount which it would cost to
repair or replace the property with material of
like kind and quality within a reasonable time
after such loss without allowance for any increased
cost of repair or reconstruction by reason of any
ordinance or law requlatinq construction or reDair
.. . . [Emphasis added.]
We take judicial notice of the fact that asbestos removal is
subject to regulations that increase the cost of removing and
disposing of materials that contain asbestos, compared to the cost
of removing and disposing of ordinary building materials.
However, the first of these two provisions is clearly
inapplicable under its own terms. The asbestos regulations, which
are of course a valid exercise of the government's police power,
did not llcause'l llresultin" "loss or damage" to the insured
or
property. It was the fire that caused the "loss or damage" to the
insured property. Therefore, Farmers Union cannot rely upon this
provision to support its claim that the cost of removing these
materials is not covered by its policy.
The Supreme Court of Idaho recently reached this same
conclusion in Ganiett v. Transamerica hisuraiice Sewices (Idaho 1990) , 800 P. 2d
656. The insurance policy at issue in Garnett purported to exclude
coverage for "[l]oss occasioned directly or indirectly by
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enforcement of any ordinance or law regulating the use,
construction, repair, or demolition of buildings or structures.'
Ganiett, 800 P.2d at 6 6 6 . The court said that:
As we read this provision, it does not limit
Transamerica's obligation for the cost of repair or
replacement of the building when a loss has occurred that
is covered by the policy, but merely states that if the
loss itself is caused by an ordinance or law, there is no
coverage. For instance, if some safety improvement of a
building to which no other loss had occurred were
required by an ordinance or law, Transamerica would not
be liable. However, when the cost of repairing or
replacing a building that had been damaged by fire is
increased by the requirements of an ordinance or law,
Transamerica is not relieved of that cost.
Gantett, 800 P.2d at 666. We agree with the Idaho decision.
Farmers Union argues that even if the increased cost of
asbestos removal is not a "loss or damage," it is certainly an
"increased cost of repair or reconstruction by reason of an
ordinance or law regulating construction or repair." Oakland, on
the other hand, argues that the asbestos which must be removed is
lldebris" and that the insurance policy affirmatively extends
coverage for debris removal without qualification.
We decline to adopt Farmers Union's interpretation of the
clause in question. Interpretation of this clause is naturally
controlled by its own context. The clause as a whole refers to the
types of new materials with which the damaged materials must be
revaired or revlaced. It is utterly silent on the question of
debris removal. Elsewhere, the policy affirmatively grants
coverage for debris removal without qualification. Thus, Farmers
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Union apparently understood when it drafted the policy that repair
and debris removal are separate costs, and if it intended to
exclude debris removal costs related to code enforcement it could
have done so.
Furthermore, coverage exclusions are subject to a rule of
narrow construction. In Dautel v. United Pacific Insurance Co. (Wash. Ct.
App. 1987), 740 P.2d 894, 896, for example, the court noted that
"[e]xclusions from coverage are contrary to the fundamental
protective purpose of an insurance policy and will, therefore, be
narrowly construed." The exclusions at issue in the case at bar
only cover costs associated with "construction, repair, or
demolition" and "repair or reconstructiont1 the insured property.
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The insurance policy does not expressly exclude costs associated
with the removal of debris that contains asbestos. The rule of
narrow construction prevents us from expanding the plain language
of these exclusions to certain types of debris, when elsewhere the
policy affirmatively extends coverage for debris removal.
We conclude that the policy as drafted affirmatively extends
coverage for debris removal, that the asbestos in question is
"debris,'I and that the policy language purporting to limit coverage
for new materials required by laws and ordinances is inapplicable.
Thus, we hold that the District Court erred in ruling that Farmers
Union had no contractual obligation to pay for asbestos removal and
that it could deduct such costs from the umpire's award.
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However, a fact issue remains regarding the amount of the
costs that are recoverable. We limit our holding to the removal of
fire-damaged asbestos and undamaged asbestos that must be removed
in order to repair damaged materials. Farmers Union suggests that
the $70,540 asbestos-removal figure used by the appraisers actually
represents the cost of removing all asbestos in the buildinq.
Oakland disputes this claim. Accordingly, we remand for a specific
factual determination of how much it will cost to remove (1) fire-
damaged asbestos: and (2) undamaged asbestos that must be removed
in order to access and repair fire-damaged materials. It is these
amounts that are covered by the Farmers Union policy.
Reversed and remanded.
We concur: < -
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Chief Justice
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January 28, 1992
CERTIFICATE OF SERVICE
I hereby certify that the following order was sent by United States mail, prepaid, to the
following named:
James A. Poore, 111; Douglas A. Buxbaum and Patrick M. Sullivan
POORE, ROTH & ROBINSON, P. C.
1341 Harrison Avenue
Butte, MT 59701
James L. Jones, Esq.
DORSEY & WHITNEY
1200 First Interstate Center
Billings, MT 59101
ED SMITH
CLERK OF THE SUPREME COURT
STATE OF MONTANA