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McKenzie v. Farmers Insurance Exchange

United States District Court, D. South Dakota, Southern Division

May 12, 2017

JULIE McKENZIE, Plaintiffs,
v.
FARMERS INSURANCE EXCHANGE, Defendant.

          MEMORANDUM OPINION AND ORDER

          Lawrence L. Piersol United States District Judge.

         Defendant Farmers Insurance Exchange has been served with a Summons and Complaint in this action, but has failed to appear and answer the Complaint. Accordingly, on March 9, 2017, Plaintiff filed a Motion for Entry of Default under Federal Rule of Civil Procedure 55(a), Doc. 8. Default was entered by the Clerk on March 9, 2017, Doc. 9. On March 10, 2017, Plaintiff filed a Motion for Entry of Default Judgment under Federal Rule of Civil Procedure 55(b)(2). Doc. 10. A hearing on Plaintiff s Motion for Default Judgment was held before the Court on Monday, May 8, 2017, at 10:00 A.M., Doc. 12. Plaintiff appeared personally along with her attorneys of record, Eric T. Preheim and Molly K. Beck. Defendant was not present. The Court has reviewed the record and pleadings and having heard arguments of Plaintiffs counsel and testimony of witnesses and having examined the evidence introduced does make these findings of fact and conclusions of law:

         BACKGROUND

         Plaintiff is a woman born in 1965, single since 2001, and is a college graduate. The Plaintiff has been employed outside the home but more recently has instead been helping with the care of her five grandchildren.

         In June 2014, Ms. McKenzie's home was damaged during hailstorms that went through the Sioux Falls region. Ms. McKenzie timely submitted a claim to Farmers Insurance Exchange ("Farmers") for the hail damage to her home. She had been their insured for 18 years. After conducting an initial inspection in November 2014, Farmers notified Ms. McKenzie in a letter dated January 5, 2015, that it was going to:

[T] emporarily close your claim until we can complete a safe and practical inspection. When weather conditions allow for an inspection, and your property is clear and dry, we'll promptly reopen your claim, inspect the damaged property and complete your claim.

         Farmers' January 5, 2015 letter went on to specifically prohibit Ms. McKenzie from making the necessary repairs until it conducted another inspection. Farmers never reopened Ms. McKenzie's claim and never returned for another inspection.

         Ms. McKenzie became worried about getting the damaged properly fixed and contacted Farmers about the status of her claim. She had sold the house after the hail damage, and sold it with the representation that she would have all of the hail damage repaired. Ms. McKenzie was worried that she was going to get sued for non-performance. The home was insured for $ 1, 025, 000. Farmers stated that it would not release the withheld depreciation because the repair work had not been "completed within 365 days of November 3, 2014." But Ms. McKenzie was not able to make the repairs within 365 days of November 3, 2014, as she was precluded from doing so by Farmers' January 5, 2015 letter. Even when Farmers was reminded of the January 5, 2015 letter to Ms. McKenzie and the reasons for why the repairs were not able to be completed within the 365-day deadline, Farmers still refused to release the depreciation. Farmers' refusal persisted even after Ms. McKenzie's repairs were completed at a cost to her of $79, 390. The roof was a wood shake roof.

         Farmers either knew or recklessly disregarded the fact that Ms. McKenzie would rely on its representations and admonitions in the January 5, 2015 letter to her detriment. In fact, Farmers' January 5, 2015 letter and subsequent inaction was used to induce Ms. McKenzie to miss the 365-day deadline for completing repairs, thereby wrongfully depriving her of the withheld depreciation, a benefit owed under the policy..

         In a denial letter the insurer claimed that there was $29, 466.82 recoverable depreciation but that the "time to recover the $29, 466.82 recoverable depreciation for the roof and windows was January 9, 2016, " that quote being in the July 11, 2016 denial of benefits letter. Again, in the January 5, 2015 letter to the insured, the insurer also stated:

Weather conditions during the winter months usually make roof/exterior inspections unsafe and impractical, so we will temporarily close your claim until we can complete a safe and practical inspection. When weather conditions allow for an inspection, and your property is clear and dry, we'll promptly reopen your claim, inspect the damaged property and complete your claim.
However, if the loss isn't covered, you'll be responsible for any expenses incurred. We'll need to inspect your home before final repairs are initiated.

         There was no excuse for withholding the insured's depreciation payment and the continued refusal to withhold in view of the circumstances was bad faith. See Johnson v. Coss, 2003 S.D. 86, ¶ 15, 667 N.W.2d 701, 706 (quoting 13 Richard A. Lord, Williston on Contracts, § 39:4 (4th ed. 2000)) ("the nonoccurrence or nonperformance of a condition is excused where the failure of the condition is caused by the party against whom the condition operates to impose a duty."); see also Bailey v. Farmers Union Co-op Ins. Co. of Nebraska, 1 Neb.App. 408, 418, 498 N.W.2d 591, 598 (1992) (citing Chadd v. Midwest Franchise Corp., 226 Neb. 502, 412 N.W.2d 453 (1987)) ("A [contractual] condition is excused if the occurrence of the condition is prevented by the party whose performance is dependent upon the condition.") In line with this general principle of contract law, "an insured should not be barred from recovery for failure to rebuild within the time constraints of the policy when the conduct of the insurer prevented the insured from rebuilding." Bailey v. Farmers Union Co-op Ins. Co. of Nebr., 498 N.W.2d 591, 599 (Neb. S.Ct. 1992).

         The Supreme Court of Maine was presented with this issue where the insurer's own actions caused the delay in construction in Maine Mut. Fire Ins. Co. v. Watson,532 A.2d 686 (Me. 1987). The Watson Court, in awarding replacement costs and rejecting the insurer's allegations that the insured was not entitled to ...


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