Hastings Mutual loses in dispute over coverage

Hastings Mutual had insured a warehouse owned by the Plaintiff, Overall Trading, Inc., but declined to pay for water damage suffered during the months of January and February  of 2005.  Hastings claimed the damage was caused by surface water run-off, a non-covered event, while the company presented proof from two engineers alleging that the damage was caused by a roof leak.  Overall Trading filed suit against the company, and Hastings claimed the suit should be dismissed because Overall never filed a new Proof of Loss after Hastings rejected the claim initially.  Hastings also sought dismissal based on Overall's failure to file a document distinguishing between the January and February losses.

The appellate court noted that when an insurer rejects a required Proof of Loss, it is statutorily obligated to explain to the insured what the insured must do to satisfy the insurer's claim defect in the proof.  It noted that Hastings had not complied with this statutory requirement and therefore could not avail itself of a technicality arising out of what it claimed was a deficient Proof of Loss.  The Court also noted, however, that it was the Court's duty to determine coverage for the January loss, and that this claim should not have been assigned for appraisal until the coverage issue was decided.  On that basis, the appraisal for the January loss was premature and the appraisers' decision that the January loss was covered was not binding.

Since the appraisers' decision combined the January and February losses, the Court should not have granted summary disposition based on the appraisal, and the appellate court remanded the case for further work.  The plaintiff must secure a decision by the Court with regard to coverage for the January loss, and it must secure an independent appraisal award for the February losses (as to which coverage was not disputed).

The opinion issued by the three judges contains a useful explication of the relative statutory rights and duties of the insurer and the insured after a casualty claim is filed.