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HEADNOTE: Cigna Property & Casualty Insurance Company v. Verzi No. 2019, September Term, 1995

Where a building covered by fire insurance is destroyed by fire, a contract to demolish the building does not release the insurer of its obligation to pay the claim if the contract for demolition remains contingent at the time of the fire.

REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 2019 September Term, 1995 ______________________________________

CIGNA PROPERTY & CASUALTY INSURANCE COMPANY

v.

DOUGLAS W. VERZI

______________________________________ Wenner, Cathell, Eyler, JJ. ______________________________________

Opinion by Wenner, J. ______________________________________

Filed: November 6, 1996

Cigna Property and Casualty Insurance Co. (Cigna), appeals from the Circuit Court for Harford County's grant of summary judgment in favor of Douglas W. Verzi (Verzi). On appeal, Cigna

inquires whether the circuit court erred in granting Verzi's motion for summary judgment.1 Finding no error, we shall affirm the judgment of the circuit court. FACTS Verzi contracted with Cigna for $100,000 of fire insurance covering a building owned by Verzi at 4101 Norrisville Road in White Hall, Maryland ("the building"). The policy was in effect

from 6 October 1991 to 6 October 1992, and the building was destroyed by fire on 4 November 1991. Three months prior to the fire, Verzi had entered into an agreement with High's to lease and demolish the building, and construct a convenience store. Pending demolition of the building,

1

In its brief, Cigna phrases its issues as follows: 1. Whether the lower court erred when it denied [Cigna's] Motion for Summary Judgment, failing to rule as a matter of law that there was no pecuniary loss to [Verzi] as a result of the fire, and, therefore, that Verzi was not entitled to recover under the insurance policy with [Cigna]? Whether the lower court erred when it granted [Verzi's] Motion for Summary Judgment, ruling as a matter of law that [Verzi] was entitled to recover the insurance proceeds under the existing fire insurance policy with [Cigna]? Whether the lower court erred when it ruled as a matter of law that [Verzi] was entitled to recover the full replacement cost of his building as a result of the damage in the fire, and, therefore, granted judgment in favor of [Verzi] against [Cigna] in the amount of $1000,000.00?

2.

3.

- 2 Verzi was permitted to store personal effects in it until 1 March 1992. The lease was contingent upon High's obtaining the necessary permits for demolishing the building and replacing it with a High's Dairy Store, including gasoline pumps. The agreement would be void

if High's was unable to obtain the necessary permits by 1 July 1992. High's acquired the permits on 23 May 1992, more than six

months after the building had been destroyed by fire. In April 1992, Verzi sought to recover from Cigna the

building's replacement value. grounds that Verzi had

Cigna denied the claim on the no compensable loss, as the

suffered

building was to be demolished.2 I. In reviewing a grant of a summary judgment, our standard "is simply whether the trial court was legally correct." Trailmaster Prods., Inc., 330 Md. 726, 737, 625 A.2d 1005 (1993). Rule 2-501(e) provides that, the court shall enter judgment in favor of or against the moving party if the motion and response show that there is no genuine dispute as to any material fact and that the party in whose favor judgment is entered is entitled to judgment as a matter of law. Beatty v. Maryland

The policy provided coverage for "the `actual cash value' at the time of loss" for damaged buildings which the insured does not choose to replace or repair. The policy does not indicate how the actual cash value of such buildings would be affected by the existence of a conditional contract for the future demolition of such buildings.

2

- 3 As the parties agree that there are no disputed facts, we turn to whether the trial court was legally correct in granting summary judgment in favor of Verzi.

- 4 II. Despite the parties agreeing that there are no disputed material facts, the legal significance of those facts is disputed. The parties agree that the building was insured when it was destroyed by fire subject to Verzi's conditional agreement with High's to demolish the building. It was also agreed that

demolition of the building was contingent on High's obtaining the necessary permits. According to Cigna, Glens Falls Ins. Co. v. Sterling, 219 Md. 217, 148 A.2d 453 (1959), is dispositive. We do not agree.

In Glens Falls, the Sterlings had obtained insurance on a home under construction. Before being completed, it suffered subThe construction contract required the Despite

stantial windstorm damage.

builder to repair the damage at no additional cost.

seeking recompense from their insurer, the Sterlings offered no evidence of actual pecuniary loss. denied. Consequently, the claim was

The Sterlings then sued their insurer.

The issue presented on appeal was "[c]an there be a recovery under a fire and windstorm insurance policy when the holders thereof fail to show a pecuniary loss from the damage to the building covered thereby as a result of wind?" Glenn Falls, 219 Md. at 218.

The Court of Appeals had not been previously faced with that issue. After considering the "New York" and "Wisconsin" rules, the Court

- 5 adopted the Wisconsin rule, the genesis of which is Ramsdell v. Insurance Co., 197 Wis. 136, 221 N.W. 654 (1928). In Ramsdell, the building destroyed by fire had been insured by both the lessor and the lessee. Although neither was required to

restore the building, it was restored by the lessee, who was reimbursed by his insurer. Subsequently, the lessor sought to

recover from its insurer, despite having contributed nothing to the restoration of the building. The Supreme Court of Wisconsin said: [T]here was one building insured; there was one fire; there was one loss. . . . Now it is practically the uniform rule that one must have an insurable interest and a loss before one can collect on a policy of insurance. . . . We agree that the damage is to be determined as of the time of the fire. But recovery is contingent on the right of the insurer to restore the building to its former usefulness. When there are other related parties by contract, may not the building be restored by others who have the right to do so, and thus defeat the right of recovery by one who has no loss in fact? The court looks to the substance of the whole transaction rather than to seek a metaphysical hypothesis upon which to justify a loss that is no loss. Ramsdell, 221 N.W. at 655; see also Beman v. Springfield Fire & Marine Ins. Co., 303 Ill. App. 554, 25 N.E.2d 603, 607 (1940); Mission Nat. Ins. Co. v. Schulman, 659 F. Supp. 270, 273 (D. Conn. 1986); Stebane Nash Co. v. Campbellsport Mut. Ins. Co., 27 Wis. 2d 112, 133 N.W.2d 737 (1965). The New York rule flows from Foley v. Manufacturers' & Builders' Fire Ins. Co., 152 N.Y. 131, 46 N.E. 318 (1897). The issue in Foley was

- 6 whether the Foleys "had an insurable interest equal to the full value of the incomplete buildings in the course of construction on their lot when the fire occurred." the Foley Court, the owners had no interest to protect in the structures while in their incomplete state, since their destruction by fire would be the loss of the contractors, and not of the owners. . . . The fact that improvements on land may have cost the owner nothing, or that, if destroyed by fire, he may compel another person to replace them without expense to him, or that he may recoup his loss by resort to a contract liability of a third person, in no way affects the liability of an insurer, in the absence of any exemption in the policy. Id. at 318-19. On the other hand, the Court of Appeals in Glens Falls adopted the Wisconsin rule, finding it to be in conformity with the elementary principle of insurance law that fire insurance . . . is a contract of personal indemnity, not one from which a profit is to be realized. As early as 1847, this Court stated that a fire insurance policy was a contract of indemnity and the right to recover `must be commensurate with the loss actually sustained' by the insured. [citations omitted] . . . `[The insured] may recover to the extent of his loss occasioned by the fire, but no more, and he cannot recover if he has sustained no loss.' 219 Md. at 222-23 (quoting 44 & 45 C.J.S. INSURANCE

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