Standard Supply Co. v. Reliance Insurance Co.

Brief Fact Summary.

Plaintiff’s house was insured by Defendant. The policy contained an exclusionary provision, which provided that Defendant would not be liable for loss occurring while Plaintiff’s house was vacant or unoccupied for more than sixty days. Before issuing a renewal policy to Plaintiff, Defendant hired a company to inspect and report on the condition of the house. The house was unoccupied for more than a year when it was destroyed in a fire, but the inspector reported that the house was occupied because a neighbor told the inspector that people lived in the house. Defendant denied Plaintiff’s claim under the policy, based on the exclusionary clause, and Plaintiff sued to collect under the insurance policy. Plaintiff sued Defendant to collect under the insurance policy. The jury found that Defendant was not estopped from denying coverage based on the policy’s exclusionary provision. Plaintiff appealed.

Synopsis of Rule of Law.

An insurer waives the performance of conditions precedent when it acts in a way that is inconsistent with insisting on strict compliance with those conditions.

Facts.

Reliance Insurance Company (Defendant) provided a fire insurance policy on a house owned by Standard Supply Co. (Plaintiff). The policy contained an exclusionary provision, which provided that Defendant would not be liable for loss occurring while the house was vacant or unoccupied for more than sixty days. Before issuing a renewal policy to Plaintiff, Defendant hired Tar Heel Reporting Company, Inc. (Tar Heel) to inspect and report on the condition of the house. John Jennings, Tar Heel’s president, completed the inspection and report. At the time of the investigation, the house had been unoccupied for more than a year. There was no electricity or heat source for the house, it was sparsely furnished, and several windows were broken. However, a neighbor told Jennings that people were living at the house. Jennings’s report described the condition of the property and stated that the house was not vacant. Defendant issued the renewal policy to Plaintiff. The house was later destroyed in a fire. Defendant denied Plaintiff’s claim under the policy, based on the exclusionary clause, and Plaintiff sued to collect under the insurance policy. The trial court instructed the jury that Jennings was not an agent of Defendant and that his knowledge about the condition of the property was not imputed to Defendant. The jury found that Defendant was not estopped from denying coverage based on the policy’s exclusionary provision. Plaintiff appealed.

Issue.

Whether an insurer waive the performance of conditions precedent when it acts in a way that is inconsistent with insisting on strict compliance with those conditions.

Held.

Yes. The trial court failed to give a proper instruction on the issue of waiver. An insurer waives the performance of conditions precedent when it acts in a way that is inconsistent with insisting on strict compliance with those conditions.

Discussion.

When an insurer, knowing the facts, acts in a way that is inconsistent with an insistence on strict compliance with the conditions precedent of the contract, the insurer waives the performance of those conditions. Plaintiff argues that Defendant waived any right to deny coverage based on the exclusionary provision, because Defendant had constructive knowledge, based on the condition of the house, that the house was unoccupied when Defendant issued the renewal policy. The question of whether Defendant had constructive knowledge that the house was vacant is a question for the jury. Whether Defendant had notice of non-occupancy depends in part on whether Jennings’s knowledge can be imputed to Defendant. In this case, Tar Heel was acting as an agent of Defendant for the purpose of investigating and reporting the condition of the house to Defendant. It is therefore possible that Jennings’s knowledge of the house’s conditions may be imputed to Defendant. In this case, there is a genuine issue as to whether Defendant was on notice that the house was unoccupied at the time it issued the renewal policy, such that its issuance of the renewal policy constituted a waiver of the exclusionary provision.