Turner v. STATE FARM FIRE AND CAS.

Citations: 614 So. 2d 1029; 1993 WL 65860Docket: 1911154

Court: Supreme Court of Alabama; March 11, 1993; Alabama; State Supreme Court

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The Supreme Court of Alabama ruled on March 12, 1993, in the case of Gary Lee Turner and Linda C. Turner v. State Farm Fire and Casualty Companies, concerning a summary judgment favoring State Farm in a breach of contract and bad faith refusal to pay insurance claim. The Turners had purchased a builder's risk insurance policy for their partially constructed house, which would convert to a homeowner's policy upon completion. After a basement wall collapsed in February 1990, State Farm denied the claim, citing exclusions for basement wall losses and collapses caused by water pressure.

The Turners appealed the summary judgment, asserting that the policy did not exclude coverage for basement wall damage and that substantial evidence existed to create a genuine issue regarding the cause of the collapse. The court emphasized the standard of review for summary judgment, noting that the evidence must be viewed in the light most favorable to the nonmovant. The court underscored that insurance policies should be interpreted liberally in favor of the insured when ambiguity arises.

The court ultimately affirmed the summary judgment in part, reversed it in part, and remanded the case, indicating that the Turners had valid arguments regarding the interpretation of their policy and the existence of factual disputes regarding the cause of the collapse.

The builder's risk insurance policy purchased by the Turners from State Farm includes a provision regarding coverage for direct physical loss due to the collapse of a building, specifically addressing the use of defective materials or methods in construction. The dispute centers on whether the term "foundation" includes basement walls, which would affect coverage for damage to those walls. The Turners assert that their basement walls were free-standing and separate from the foundation, understanding "foundation" to refer only to the concrete base. Conversely, State Farm defines "foundation" as encompassing the entire masonry substructure, including basement walls.

The court emphasizes that insurance policy language should be interpreted based on the understanding of an ordinary person. It finds State Farm's broader definition unconvincing, suggesting that an ordinary person would likely view "foundation" as the concrete base alone, especially in a house without a basement. Since the policy does not define "foundation," and ambiguity favors the insured, the court concludes that "foundation" does not exclude the basement wall from coverage.

Additionally, while the Turners acknowledge that their policy would not cover damage from a collapse caused by water pressure, they argue they have provided sufficient evidence to create a genuine issue of material fact regarding whether water pressure was the cause of the basement wall's collapse.

State Farm's expert, structural engineer James A. Durham, linked water pressure to the basement wall's collapse but did not inspect the property until five days post-collapse. Testimonies from Mr. Turner and realtor Walter Gillespie indicated that both the basement floor and the dirt behind the wall were dry at the time of the collapse, contradicting Durham's claims. Durham acknowledged that dry conditions would refute his theory regarding water pressure. Consequently, the summary judgment regarding the Turners' breach of contract claim was reversed, and the case was remanded for further proceedings.

Regarding the Turners' bad faith claim against State Farm, bad faith involves an insurer's intentional failure to uphold the duty of good faith and fair dealing. An insurer may be liable if it denies a claim without lawful basis or fails to verify such a basis. The Turners argue that State Farm denied their claim before inspecting the damage. Evidence presented by the Turners included testimony from Mr. Turner about a conversation with a State Farm representative, Harrison, who indicated the claim would likely not be covered before conducting an inspection. Despite initial claims about the cause of damage, Harrison later shifted his position multiple times, ultimately leading to uncertainty about coverage. This situation raises issues regarding the insurer's obligation to investigate claims when reasonable doubt exists about the cause of damage.

Mr. Turner acknowledged during his deposition that on February 6, 1990, Harrison initially denied the claim but later indicated he would send an engineer. Subsequently, on February 8, 1990, State Farm dispatched structural engineer Durham to inspect the Turners' property for the cause of the basement wall collapse. Durham submitted his inspection report on February 19, 1990, and by February 21, 1990, Harrison informed the Turners' attorney that State Farm was denying the claim. The deposition indicated that Mr. Turner claimed the basement was not wet at the time of the collapse, suggesting State Farm was obligated to investigate the damage per the court's precedent in Jones, which they did. Therefore, State Farm demonstrated a prima facie case against the bad faith claim, leading to the affirmation of summary judgment in their favor on that issue. The court's decision was affirmed in part, reversed in part, and remanded. Justice Steagall concurred with the affirmation regarding the bad faith claim but dissented on the breach of contract claim, arguing that the basement wall should be excluded from coverage as it qualified as part of the foundation based on Mr. Turner's testimony. He stated that the Turners did not provide substantial evidence to show the loss directly resulted from the house's collapse, making the exclusion applicable.