McGlone v. Midwestern Group

Sweeney, J. The present action involves the application of R.C. 3929.25 to the policy of insurance issued by appellant herein. R.C. 3929.25 provides in relevant part: “A person, company, or association insuring any building or structure against loss or damage by fire or lightning, by renewal of a policy, shall have such building or structure examined by his or its agent, and a full description thereof made, and its insurable value fixed, by said agent. In the absence of any change increasing the risk without the consent of the insurers, and in the absence of intentional fraud on the part of the insured, in the case of total loss the whole amount mentioned in the policy or renewal, upon which the insurer received a premium, shall be paid. If, however, the policy of insurance, by its express terms, permits the policyholder to recover the full cost of repair, or replacement, of the building or structure, without deduction for depreciation or obsolescence, up to the limits of the policy in the event that the building or structure is in fact repaired or replaced, the amount of recovery for any loss under such a policy of insurance shall be as prescribed by the policy. * * * ” (Emphasis added.) This court was asked to construe the predecessor to R.C. 3929.25 (R.S. 3643 later codified as G.C. 9583) in Insurance Co. v. Leslie (1890), 47 Ohio St. 409, 24 N.E. 1072. It was determined at that time that the statute rested “upon considerations of public policy; one of its purposes being to exact of insurance companies doing business in this state reasonable diligence and care to avoid improper risks and overinsurance, by requiring their agents to make personal examination of the property, and fix its insurable value, before writing the insurance. Well-regulated companies, after such examination, would not take the risk, if not a proper one, nor write a policy for an amount greater than the actual value of the property. The more effectually to accomplish this purpose, the statute has provided that the company shall be liable on its policy [116] unless a change subsequently occurs increasing the risk without its consent, or the assured has been guilty of intentional fraud, and that in case of total loss the company shall abide by the valuation it has placed upon the property.” Id. at 416, 24 N.E. at 1074. Thus, according to the decision in Leslie, where an insurance company has assigned a value to real property for the purpose of arriving at a premium amount, the company is estopped from ascribing a lesser value to the property once total destruction thereto has occurred and a claim under the policy has been submitted by the insured. Effective July 31, 1980, R.C. 3929.25 was amended by the General Assembly to add the third sentence of the present statute. It is the contention of appellant that the 1980 amendment was designed to limit the obligation of the insurer to pay the total face value of the policy only where the insured actually replaces the property totally destroyed and the loss meets or exceeds the policy limits. However, an equally plausible explanation for the added statutory language is that it limits the liability of the insurer to the replacement cost of the structure where replacement occurs and the cost is less than the insurable value of the destroyed property as set by the policy. Moreover, were we to adopt the interpretation of the third sentence of R.C. 3929.25 urged by appellant, we would render meaningless the second sentence thereof which plainly requires that “the whole amount mentioned in the policy or renewal, upon which the insurer received a premium, shall be paid” in the event of a total loss. We therefore conclude that, pursuant to R.C. 3929.25, where an insured party sustains a total loss to property covered under a fire insurance policy and does not replace such property, that party is entitled to payment of the full face value of the policy absent any change increasing the risk without the consent of the insurer and absent intentional fraud on the part of the insured. Our holding in the case subjudice underscores the public policy foundations of R.C. 3929.25 as identified in Leslie, while giving full effect to the statutory language added by the General Assembly in 1980. It assures that consumers of insurance services will be made whole to the extent of their coverage either through receipt of amounts equal to the insurable value of the property for which premiums were paid or through replacement of the destroyed structure. The alternative interpretation of R.C. 3929.25 advanced by appellant would have the anomalous effect of requiring an insured to potentially incur expenses over and above the policy limits (where such limits are exceeded by the cost of replacement) in order to realize an amount equal to the insurable value of the property set by the policy and upon which the premiums were based. This result is contrary to the plain language of the statute. [117] Appellant further argues that the purpose of the 1980 amendment was to prevent arson by discouraging insureds from insuring properties for an amount in excess of their replacement value. Under such circumstances, appellant maintains, an insured would be permitted to profit from an inflated value ascribed to the property by the policy. This argument is erroneous in numerous respects. As an initial matter, the second sentence of R.C. 3929.25 clearly precludes recovery of the value of the property set by the policy in the event of intentional fraud by the insured. Secondly, the argument assumes that the insurer will acquiesce in a practice which attributes to the property a value bearing no relationship to reality. Not only is the insurer under no obligation to accept an inflated value set by the insured, but, pursuant to R.C. 3929.25, the insurer is responsible for establishing the insurable value. Finally, the argument of appellant assumes that, in all cases where an insured chooses not to rebuild, insurance fraud must be present. This contention lacks empirical support and contradicts the plain language of R.C. 3929.25. The statute clearly presumes that the issue of fraud is to be resolved on a case-by-case basis. Accordingly, the judgment of the court of appeals is affirmed, and the cause is remanded to the trial court for further proceedings. Judgment affirmed and cause remanded. Douglas and Resnick, JJ., concur. H. Brown, J., concurs in judgment. Moyer, C.J., Holmes and Wright, JJ., dissent.