ATTORNEY FOR APPELLANTS
Donald R. Wright
Evansville, Indiana
ATTORNEYS FOR APPELLEES
Jeffrey W. Henning
James D. Johnson
Jennifer L. Johnson
Evansville, Indiana
IN THE
SUPREME COURT OF INDIANA
WILLIAM L. BOSECKER and, )
DIANE BOSECKER, Individually, )
)
Appellants (Plaintiffs Below), ) Indiana Supreme Court
) Cause No. 82S04-9902-CV-148
v. )
)
WESTFIELD INSURANCE COMPANY) Indiana Court of Appeals
and SAM T. HESTON & SONS, INC., ) Cause No. 82A04-9711-CV-500
d/b/a HESTON INSURANCE )
AGENCY, )
)
Appellees (Defendants Below). )
APPEAL FROM THE VANDERBURGH SUPERIOR COURT
The Honorable J. Douglas Knight, Judge
Cause No. 82D03-9607-CP-1848
ON PETITION TO TRANSFER
February 23, 2000
BOEHM, Justice.
This case turns on whether the builder’s risk policy involved here,
acquired for the specific purpose of repair and renovation of an existing
building, covers the building before any work has started. We hold that
the language in this policy is ambiguous and therefore must be construed in
favor of the insured to provide coverage starting from its effective date.
In the mid-1980s, William and Diane Bosecker purchased a piece of
real estate in Evansville containing a four-unit apartment building and
another small structure. In June of 1995, they sold the property to Jason
Bartley under a conditional sales contract, but on February 22, 1996,
Bartley returned the property to the Boseckers after he was unable to make
the payments.
Diane immediately contacted her insurance agency, Heston Insurance
Agency, told Diane Terrell, an agent for Heston, that the property was
vacant and had water problems, and inquired about obtaining insurance on
the property.[1] Terrell first agreed to bind the property under what was
variously described as a “standard apartment house” or “landlord’s” policy
from Westfield Insurance Company, the Boseckers’ insurer at the time, but
then concluded that she would need additional information. William called
Terrell the next day, February 23, and gave her the size and age of the
buildings and reported that he had received notices from the City of
Evansville Code Enforcement Division requiring that the buildings be
vacated and repairs made under threat of razing the buildings. Based on
this information, Terrell and the president of Heston decided that the
property would not be eligible for the standard apartment building policy,
and instead added it as an endorsement to an existing builder’s risk policy
from Westfield that insured other properties of the Boseckers.
The policy contained two apparently inconsistent provisions defining
the covered risks. Section A(1)(a) defined “Covered Property” as
“[b]uildings or structures including foundations while in the course of
construction, installation, reconstruction, or repair.” Section A(2)(b) of
the policy described “Property Not Covered” as “[e]xisting buildings or
structures to which improvements, alterations, repairs, or additions are
being made.” On the face of these two provisions, a structure is both
covered and not covered if it is under repair.
Approximately ten hours after the property was added to the policy, at
2:00 a.m. on the morning of February 24, the apartment building was
destroyed by fire. In its response to the Boseckers’ claim for the fire
loss, Westfield denied coverage based on the “Property Not Covered”
definition, apparently on the assumption that “improvements, alterations,
repairs, or additions” were being made.
The Boseckers filed suit against Westfield on July 23, 1996, and
amended their complaint nine months later, on April 25, 1997, to include a
claim against Heston. Heston then cross-claimed against Westfield and all
parties filed motions for summary judgment. Westfield based its motion on
the fact that the property was not “Covered Property” because the Boseckers
had not yet started the anticipated repairs. The trial court granted
Westfield’s motion for summary judgment and the Boseckers appealed. The
Court of Appeals affirmed the trial court’s grant of summary judgment in
favor of Westfield, holding that although the policy was ambiguous in the
respect already noted, the loss was not covered because the Boseckers had
taken no action to start the repairs and the property was therefore not “in
the course of reconstruction or repair.” Bosecker v. Westfield Ins. Co.,
699 N.E.2d 769, 773 (Ind. Ct. App. 1998). Judge Bailey dissented. See id.
at 774-75.
The parties’ arguments turn on the construction of the policy
language, and there is no factual dispute. Accordingly, this is a proper
case for summary judgment and our standard of review is de novo.
The Boseckers claim that the trial court erred in granting summary
judgment for Westfield because the insurance policy is ambiguous and should
be construed broadly to include the property as “Covered Property.” They
base their claim on specific language in the policy that included the
property on the declarations page and the “in the course of repair”
language which they contend covered the property at the time of the fire
because repairs were imminent. Westfield responds that the trial court’s
grant of summary judgment was proper because the policy required “Covered
Property” to actually be under repair or reconstruction, not merely
designated for that purpose.
Contracts of insurance are governed by the same rules of construction
as other contracts. See Eli Lilly & Co. v. Home Ins. Co., 482 N.E.2d 467,
470 (Ind. 1985). The proper interpretation of an insurance policy, even if
it is ambiguous, generally presents a question of law that is appropriate
for summary judgment. See Colonial Penn Ins. Co. v. Guzorek, 690 N.E.2d
664, 667 (Ind. 1997); Tate v. Secura Ins., 587 N.E.2d 665, 668 (Ind. 1992).
An ambiguity exists where a provision is susceptible to more than one
interpretation and reasonable persons would differ as to its meaning. See
Eli Lilly, 482 N.E.2d at 470; see also Colonial Penn, 690 N.E.2d at 667.
It is well settled that “[w]here there is ambiguity, insurance policies are
to be construed strictly against the insurer” and the policy language is
viewed from the standpoint of the insured. American States Ins. Co. v.
Kiger, 662 N.E.2d 945, 947 (Ind. 1996); accord Erie Ins. Co. v. George, 681
N.E.2d 183, 191 (Ind. 1997); Tate, 587 N.E.2d at 668.
Ambiguities are construed strictly against the insurer to further the
general purpose of the insurance contract to provide coverage. Tate, 587
N.E.2d at 668. This is particularly true where, as in this case, the
policy is not the product of an equal bargaining relationship and the
language has been chosen by the insurer.
Insurance policies are prepared in advance by insurance and legal
experts, having in view primarily the safeguarding of the interests of
the insurer against every possible contingency. The insurer not only
fully knows the contents of the writing, but also adequately
comprehends its legal effect. The insured has no voice in fixing or
framing the terms of [the] policy, but must accept it as prepared and
tendered, usually without any knowledge of its contents, and often
without ability to comprehend the legal significance of its
provisions.
Glens Falls Ins. Co. v. Michael, 167 Ind. 659, 677, 74 N.E. 964, 969
(1905).
Westfield notes the policy’s use of the term “existing” to modify only
buildings that are “Property Not Covered.” It contends that “Property Not
Covered” is defined to be buildings other than new construction. Under
this view, the policy covers new construction in progress and, to the
extent a previously existing building is under the policy, only the
“improvements and additions” are covered, not the pre-existing building.
This, however, seems contradicted by references in “Covered Property” to
“reconstruction” and “repair” as well as “construction.” In sum, we agree
with the Court of Appeals that the policy is quite unclear in its
delineation between property covered and not covered.
The issue then becomes whether the building was “in the course of”
reconstruction or repair at the time of the fire. The policy states its
effective dates to be April 27, 1995 to April 27, 1996. The house and
apartment building are listed as added covered property on a Commercial
Inland Marine Coverage Part Endorsement. Under the Commercial Inland
Marine Conditions, Provision D concerning the policy period specifically
states that “[w]e [Westfield] cover ‘loss’ commencing during the policy
period shown in the Declarations.” Still yet another section states that
coverage for the apartment building and house begins on February 22, 1996
at 4:00 p.m. Finally, the policy has a section entitled “When Insurance
Begins and Ends.” That section states that “[w]e [Westfield] cover from
the time the Covered Property is at your risk starting on or after the date
this coverage begins . . . .” In sum, it is reasonably clear that some
risks of repair to these properties were covered as of February 22, but it
is unclear whether repair needed to be underway before coverage attached.
The majority in the Court of Appeals held that the “Covered Property”
provision was a condition precedent to Westfield’s obligation to insure the
building and that until the repair work was started, the insurance was not
effective because the building was not “in the course of” reconstruction.
We agree with Judge Bailey that the policy was sufficiently ambiguous on
this point that it must be construed to provide coverage. “A builder’s
risk policy ordinarily indemnifies a builder or contractor against the loss
of, or damage to, a building he or she is in the process of constructing.”
1 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d § 1:53 (1997).
These contracts for insurance may be for a fixed period of time or for a
specified project. 9 id. § 132.20. The policy here specifically added
“reconstruction” and “repair” to “constructing.” According to the
undisputed facts, the President of Heston, Boseckers’ agent, believed the
property was in the process of “reconstruction” when it was reacquired with
the specific purpose of accomplishing the repairs needed to bring it into
compliance with the building code. He apparently reached this conclusion
by reference to a general understanding of builder’s risk policies and also
a reading of the specific language of Westfield’s policy. We cannot say
that the conclusion he reached was an unreasonable interpretation of the
policy that was issued. Accordingly, the policy is construed to afford
coverage under the principles already discussed.
We also believe this result makes sense from a practical viewpoint.
If the builder’s risk insurance were not effective until the repairs
started, then the Boseckers and anyone else acquiring a building for
purposes of rehabilitation would have to obtain two separate insurance
policies, one to cover the two days before the repairs started, and one to
cover the property while it was being repaired. Alternatively, the policy
construction Westfield urges would force a concurrent driving of the first
nail at the time of closing the acquisition of the property as a symbolic
commencement of repairs. Both results seem unnecessarily cumbersome and
artificial. Unoccupied buildings that are being held for long periods
before repairs are to be initiated may present risks different from those
contemplated by the builder’s risk policy, but if Westfield intended to
differentiate between the two, it needed to set this out in clear terms in
the policy. Not having done so here, the risk remained with the insurer.
The judgment of the trial court is reversed and the cause is remanded
with instruction to enter partial summary judgment on the issue of coverage
in favor of the Boseckers and for further proceedings.
SHEPARD, C.J., and DICKSON and SULLIVAN, JJ., concur.
RUCKER, J., not participating.
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[1] At that time the Boseckers had both a builder’s risk insurance policy
and an apartment policy on other properties, which were provided by
Westfield through Heston.