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Property Insurance (“Commercial Use” and Fire Policies) in brief

by merlin on December 8th, 2014
  • Sumo

After an interesting conversation brought this issue to the forefront of my research, it appears that the extensive research I did on this issue for another case back in 2010 was never discussed on this site.  Property Insurance has some odd and difficult rules associated with it, and this is only a generalized overview of the issues associated with it.  However, as concerns the particular initial issue that the problem presents, the general rules are as follows:

Section 33-24-4 of the Official Code of Georgia lists property interests under “insurable interests”:

“(a) As used in this Code section, “insurable interest” means any actual, lawful, and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage or impairment.

(b) No insurance contract on property or of any interest therein or arising therefrom shall be enforceable except for the benefit of persons having, at the time of the loss, an insurable interest in the things insured.

(c) The measure of an insurable interest in property is the extent to which the insured might be damnified by loss, injury, or impairment of such interest in such property.”

The section itself states how much the measure of value would be in subsection (c).

However, “property insurance” itself is expressly defined in Section 33-7-6(a).  That section states that it is “insurance on real or personal property of every kind and interest therein against loss or damage from any or all hazards or causes and against loss consequential upon such loss or damage other than noncontractual legal liability for any such loss or damage.”  The subsection goes on to say that it “shall also include miscellaneous insurance as defined in paragraph (10) of Code Section 33-7-3, except as to any noncontractual liability coverage includable therein.”

Section 33-7-3 defines “casualty insurance”, which includes vehicle insurance.   However, it is the rest of Section 33-7-6 that is placed here, because it was most relevant to the issue at hand:

“(b) Property insurance also includes:

(1) Any contract, agreement, or instrument whereby a person assumes the risk of and the expense or portion thereof for:

(A) The mechanical breakdown or mechanical failure of a motor vehicle; or

(B) The repair of certain reasonable motor vehicle wear and tear sustained in ordinary use, such as:

(i) The removal of dents, dings, or creases in a motor vehicle without affecting the existing paint finish using paintless dent repair techniques;

(ii) The removal of small windshield chips and cracks without replacement of the entire windshield;

(iii) The repair of rips, burns, tears, holes, and punctures to interior fabric or carpet;

(iv) Cosmetic repair of minor scuffs, scratches, scrapes, or rash on exterior plastic surfaces, including, but not limited to, bumpers;

(v) Cosmetic repair to aluminum or painted wheels when the normal appearance of the wheel is altered with minor curb scuffs, scratches, scrapes, or rash; or

(vi) Exterior reconditioning of foggy or yellowed headlights to restore clarity and luster, and shall include those agreements commonly known as vehicle service agreements or extended warranty agreements, if made by a person other than the motor vehicle manufacturer in exchange for a separately stated charge or the cost of the contract or contracts is included on a nonidentifiable basis in the cost of a motor vehicle sold in conjunction therewith, except that this provision shall not apply to an agreement underwritten by an insurer licensed to transact insurance in this state, either directly or through a reinsurance contract or, without regard to the requirement that the insurance cannot be obtained from an insurer authorized to do business in this state as required by Code Section 33-5-21, to an agreement underwritten by a surplus lines insurer which has not been rejected by the Commissioner for such purpose;

(2) Any contract, agreement, or instrument whereby a person assumes the risk of and the expense or portion of such expense for the structural or mechanical breakdown, loss of, or damage to a one-family or two-family residential building structure or any part thereof from any cause, including loss of or damage to or loss of use of the building structure or major components thereof which are attached to and become a part of said structure, if made by a person other than the constructing contractor or manufacturer of the building structure or part thereof in exchange for a separately stated charge or the cost of the contract or contracts is included on a nonidentifiable basis in the cost of such building structure sold in conjunction therewith, except that this provision shall not apply to an agreement underwritten by an insurer licensed to transact insurance in this state, either directly or through a reinsurance contract or underwritten by a surplus line insurer approved by the Commissioner nor shall this provision apply to an agreement: (A) the performance of which is guaranteed by a surety bond executed by an authorized corporate surety insurer in favor of and approved by the Commissioner in an amount of not less than $1.5 million; provided further that a surety bond of an additional $100,000.00 shall be required for every additional $500,000.00 in written premium above $2 million in written premium. Any company relying upon one or more bonds pursuant to this subsection shall keep such bonds or equivalent coverage in place until the expiration of the contract, agreement, or instrument contemplated in this paragraph; or (B) notwithstanding with a duration of 13 months or less covering damage to or loss of use of the major appliances located in an existing or resold home where the performance of any covered repair is guaranteed by a surety bond executed by a corporate surety insurer authorized to offer surety insurance in this state in favor of the Commissioner and in an amount which in the discretion of the Commissioner will provide adequate protection to all the residents of this state who are covered by such agreements, provided that such amount shall not be less than $100,000.00; or

(3) Any contract, agreement, or instrument, other than an agreement, contract, or instrument covered by paragraphs (1) and (2) of this subsection, whereby a person assumes the risk of and the expense or portion thereof for the cost of repair or replacement of a product if such contract, agreement, or instrument is made by a person other than the manufacturer in exchange for a separately stated charge or the cost of the contract or contracts is included on a nonidentifiable basis in the cost of the product sold in conjunction therewith, except that this provision shall not apply to:

(A) An agreement underwritten by an insurer licensed to transact insurance in this state, either directly or through a reinsurance contract;

(B) Any contract, agreement, or instrument relating to similar services furnished by any air carrier that provides interstate air transportation;

(C) Any tire replacement contract, agreement, or instrument;

(D) A contract, agreement, or instrument whereby a retailer in the business of selling consumer products or a wholly owned subsidiary of such retailer assumes the risk of and the expense or portion thereof for the cost of repair or replacement of consumer products where such contract, agreement, or instrument is guaranteed by a surety bond executed by a corporate surety insurer authorized to offer surety insurance in this state in favor of and approved by the Commissioner in an amount of not less than $100,000.00; or

(E) Any contract, agreement, or instrument whereby any person assumes the risk of and the expense or portion of such expense for the breakdown, service, repair, or replacement due to normal wear and tear or structural or inherent defect to the major appliances, utility systems, and roofing system of any one-family or two-family residential building structure in exchange for a separately stated consideration and does not otherwise provide direct or consequential coverage under a property contract defined in paragraph (1) or (2) of this subsection or the introductory language of this paragraph and such contract, agreement, or instrument is guaranteed by a surety bond executed by a corporate surety insurer authorized to offer surety insurance in this state in favor of and approved by the Commissioner in an amount of not less than $100,000.00.

(c)(1) Any contract, agreement, or instrument, as regulated under paragraphs (1), (2), and (3) of subsection (b) of this Code section, shall state clearly and conspicuously in the contract the name and address of the insurer or surety which has guaranteed or underwritten the contract, agreement, or instrument, either directly or through a reinsurance contract.

(2) In the event a regulated contract, agreement, or instrument is issued by a party other than an insurer so that the holder thereof, in the first instance, must make a claim or request for refund pursuant to paragraph (3) of this subsection against a party other than the insurer, the contract, agreement, or instrument shall provide that the holder shall be entitled to make a direct claim against the insurer upon the failure of the issuer to pay any claim or to refund the consideration paid by the holder for the contract, agreement, or instrument within 60 days after proof of loss has been filed with the issuer.

(3) The regulated contract, agreement, or instrument shall be noncancelable by the issuer except for fraud, material misrepresentation, or failure to pay the consideration due therefor. The cancellation shall be in writing and shall conform to the requirements of Code Section 33-24-44. The holder may cancel at any time upon demand and surrender of the contract, agreement, or instrument whereupon the issuer shall refund the excess of the consideration paid for the contract, agreement, or instrument above the customary short rate for the expired term of the contract, agreement, or instrument.

(4) Any contract, agreement, or instrument exempt under subparagraph (b)(3)(D) or (b)(3)(E) of this Code section shall state clearly and conspicuously substantially the following: “This is not a contract of insurance.”

(d) The Commissioner shall have the power and authority to promulgate rules and regulations regarding vehicle service agreements or extended warranty agreements as described in paragraph (1) of subsection (b) of this Code section. Such rules and regulations shall include filing requirements, disclosures for the benefit of the agreement holder, record keeping, and procedures for public complaints. Such rules and regulations shall also include the conditions under which surplus lines insurers may be rejected for the purpose of underwriting vehicle service agreements and extended warranty agreements.
(e)(1) As used in this subsection, the term “heavy equipment dealer” means a person, firm, or corporation which is primarily engaged in the business of selling, renting, leasing, and servicing heavy equipment, engines, power generation equipment, and parts and attachments to such heavy equipment which is primarily used for construction, industrial, maritime, mining, agriculture, or similar purposes and who is not required to be licensed.

(2) The provisions of this Code section shall not apply to heavy equipment dealers.

(f) Property insurance does not include those agreements commonly known as vehicle service agreements or extended warranty agreements which are issued, sold, or offered for sale by a retail installment seller, as defined in Code Section 10-1-31 in connection with the sale of a motor vehicle by such retail installment seller, provided that such retail installment seller:

(1) Maintains, or has a parent company maintain, a net worth or stockholders’ equity of at least $50 million, provided the parent company guarantees the obligations of the retail installment seller arising from vehicle service agreements or extended warranty agreements underwritten pursuant to this subparagraph;

(2) Complies with the registration requirement prescribed by the Commissioner through regulation;

(3) Files with the Commissioner a true and correct copy of the vehicle service agreement or extended warranty agreement that has a term of and is no longer than nine months in a form that is consistent with the terms prescribed by the Commissioner through regulation;

(4) Files a copy of its Form 10-K or Form 20-F disclosure statements, or if it does not file such statements with the United States Securities and Exchange Commission, a copy of its audited financial statements reported on a GAAP basis. If the retail installment seller’s financial statements are consolidated with those of its parent company, then the retail installment seller may comply with this provision by filing the statements of its parent company. The statement shall be filed with the Commissioner 30 days prior to the retail installment seller’s initial offering or delivering of a service agreement or extended warranty agreement, and thereafter, the statement shall be filed with the Commissioner annually; and

(5) Upon the request of the Commissioner, posts a security deposit or surety bond in an amount not to exceed $250,000.00 and in the manner prescribed by the Commissioner through regulation.”

That Code also provides for certain mandatory provisions that must be included in a contract for property insurance.  Because there are certain specific rules for property insurance, governed by a specific Title of the Georgia Code, the potential for specific deviations from the ordinary applicable rules of contractual interpretation was there.  However, the prevailing cases on the issue are clear that the intent of the parties, expressed through the written contract (with ambiguities resolved by final resort to parol evidence only when it does not contradict the written contract and is necessary to explain an ambiguous term) will govern.  The case of State Farm Fire and Casualty Company v. Rowland, 111 Ga.App. 743, dates back to 1965, but still provides a good, no-nonsense explanation of this common-sense contract rule:

Syllabus by the Court

        A fire insurance policy provision that the insured may apply 10% of the insurance applicable to the principal dwelling as additional insurance to cover private structures on the premises, but not structures used in whole or in part for mercantile, manufacturing, or farming purposes, does not exclude from coverage a garage located on the premises in which the insured paints and repairs automobile bodies for others, since such use does not render the garage a public mercantile or manufacturing establishment.

        Rowland had a policy of fire insurance on his residence containing the following clause: ‘The insured may apply up to 10% of the amount of insurance applicable to the principal dwelling item as an additional amount of insurance to cover private structures appertaining to the premises described for that dwelling and located thereon, but not to (1) structures used in whole or in part for mercantile, manufacturing or farming purposes.’ The insured had on the premises a garage outfitted as an automobile body paint and repair shop, in which he painted and repaired automobiles for customers. A fire loss to this structure was sustained, and, after the insurer refused to pay, this suit was brought, resulting in a verdict for the plaintiff for the loss plus attorney fees. The motion for judgment notwithstanding the verdict was overruled as to the amount of the loss and sustained as to the sum awarded for attorney’s fees.

        Chris B. Conyers, Conyers, Fendig, Dickey & Harris, Brunswick, for plaintiff in error.

        Ronald F. Adams, Brunswick, for defendant in error.

        RUSSELL, Judge.

        A portion of the well reasoned opinion of the trial court overruling the motion for judgment n. o. v. is here quoted:

        ‘Our courts have held that ‘in the construction of a contract, the words used therein will generally be accepted in their usual common significance,’ Insurance Company of North America vs. Samuels, 31 Ga.App. 258 [120 S.E. 444]. [Public] Indemnity Company of Newark, N. J., vs. Yearwood, 50 Ga.App. 646 [179 S.E. 232]. and that ‘in construing a policy of insurance so as to arrive at the true intention of the parties, the ordinary legal and literal meaning of the words must be given effect when it is possible to do so without destroying the substantial purpose and effect of the contract.’ Liverpool and London and Globe Ins. Co. vs. Automobile & Supply Co., 29 Ga.App. 334 [115 S.E. 138].

        ‘These decisions raise the question, therefore as to what is the meaning of the words ‘private structure’ as used in this policy. After a diligent search, we have found no Georgia case in point * * * nor have we found any express definition of the term ‘private structure’. We apparently do not have, therefore, any definite ruling of our courts upon which to predicate this decision. We do find, however, the following from another State as a definition of a ‘public building’ as distinguished from a private building: ‘One, of which the possession and use, as well as the property in it, are in the public.’

        ‘Webster’s dictionary says: ‘In general, ‘public’ expresses something common to mankind at large, to a nation, state, city or town, and is opposed to ‘private’ which denotes what belongs to an individual, to a family, to a company or corporation.’ Quoted in Chamberlan vs. Berlington, 19 Iowa 395, 403.

        ‘Words and Phrases, Volume 33, page 706, defines ‘private property as that which is one’s own; something that belongs or inheres exclusively in an individual party.’ While Bouvier’s Law Dictionary, Volume 2, page 753 [2714], in speaking of ‘private property’ says: ‘The term applies to such as belongs absolutely to an individual, and of which he has the exclusive right of disposition; property of a specific, fixed and tangible nature, capable of being had in possession and transferred to another, as houses, lands and chattels.’

        ‘That this was a personally owned piece of property is not disputed. It belonged to the plaintiffs and the general public had no interest in it. Would the fact that the owner chooses to use it for the purpose of painting or repairing cars therein for those who might seek his service, change its character from a ‘private structure’? * * *

        ‘Our courts hold that contracts of insurance are to be construed most strongly against the insurer and in favor of the insured. Penn Mutual Life Ins. Co. vs. Milton, 160 Ga. 168, 127 S.E. 140, 40 A.L.R. 1382. Pacific Life Ins. Co. vs. Meldrim, 24 Ga.App. 487. Hartford Steamroller Inspection & Ins. Co. vs. Cochran Oil Mill Co., 26 Ga.App. 288, 105 S.E. 856. Johnson vs. Mutual Life Ins. Co. of N. Y., 154 Ga. 653, 115 S.E. 14. Mo. State Life Ins. Co. vs. Lovelace, 1 Ga.App. 446, 58 S.E. 93. Royal Union Life Ins. Co. vs. McLendon, 4 Ga.App. 620,62 S.E. 101. Empire Life Ins. Co. vs. Einstein, 12 Ga.App. 380, 77 S.E. 209. Perkins vs. Empire Life Ins. Co., 17 Ga.App. 658, 87 S.E. 1094.

        ‘Also, that where the terms of an insurance policy will bear two interpretations, that one will be adopted which sustains the claim for indemnity. Etna [Aetna] Life Ins. Co. vs. Palmer, 159 Ga. 371, 125 S.E. 829. Insurance Company of North America vs. Samuels, 31 Ga.App. 258, 120 S.E. 444.

        Corpus Juris also says: ‘The language of the policy being chosen by the insurer, it should be construed, if practical, so as to cover the subject matter intended to be covered, and a policy which describes the property in comprehensive terms or under a general designation, covers whatever is commonly known by such general name or is necessarily or reasonably presumed to be within the terms used and within the intention of the parties. But a clear description will not be extended so as to include property plainly not within the terms of the policy and which could not reasonably have been within the contemplation of the parties. 86 C.J., Section 84.

        ‘Now the next question is, was this structure used in whole or in part for mercantile purposes.

        ‘Webster defines ‘mercantile as pertaining to merchants or to the business of merchants.’ (Quoted in Re San Gabriel Sanitorium Company, 95 F. 276 .)

        ‘In addition to this, we have these further definitions: ‘The word ‘mercantile’ in its original acceptation pertains to the business of merchants and has to do with trade or buying and selling of commodities.’ In Re Cameron Town Mutual Fire, Lightning & Windstorm Ins. Co., 96 Fed. 756, 757. People vs. Fed. Security Co. (Cited in Words & Phrases, Vol. 27, page 95.)

        “The term ‘mercantile business’ is defined to mean the buying and selling of articles of merchants as an employment.’ Veazey Drug Co. vs. Breeza, 169 Okla. 418, 37 P.2d 294.

        “A merchant’ is one who is engaged in buying and selling [111 Ga.App. 746] goods, wares or merchandise for gain or profit. ‘Mercantile’ pertains to the business of merchants. Cleve vs. Mazzoni, Ky., 45 S.W. 88, 89.

        ‘A shoe shine parlor and hat cleaning establishment is not a ‘mercantile establishment’, within the meaning of a lease providing that the premises shall not be used for other than mercantile purposes. Cesar vs. Virgin, 207 Ala. 148, 24 A.L.R. 715, 92 So. 406, 407.

        ‘Where a business was essentially an automobile repair shop in which it was necessary to keep various parts for use in repairing cars, which parts were usually adjusted to cars of purchasers, and the sale of such parts constituted an inconsequential part of the business, it was held that the business was not a mercantile business within the meaning of the law under consideration. Fisk R. Co. vs. Hinson Automobile Co., 168 Ark. 418, 270 S.W. 605, 607.

        ‘A restaurant has been held both to be (Craig v. Bourdouris, 241 Ill.App. 392) and not to be a mercantile establishment. In Re Excelsior Cafe Co., [D.C.], 176 F. 294, 296.

        ‘In view of these decisions * * * I am, therefore overruling the motion in so far as the recovery on the outbuilding is concerned.’

        It is only left to comment on Ziebarth v. Fidelity & Guaranty Fire Corp., 256 Wis. 529, 41 N.W.2d 632 upon which the defendant strongly relies. Under identical policy provisions it was there held that a garage on the insured premises used by the owner as an automobile repair shop was not a ‘private structure’ because it was ‘open to the public’, or, as construed in Coffey v. Girard Ins. Co., 182 Kan. 579 , 322 P.2d 345, because it was ‘in public commerce’. However, having regard to the policy language (‘* * * to cover private structures * * * but not * * * structures * * * used in whole or in part for mercantile * * * purposes’ we prefer the rationale of Dyer v. Standard Fire Ins. Co. of N. J., (Mo. [App.]) 227 S.W.2d 520, 523, where the line of distinction was drawn not between a ‘private structure’ and a ‘structure privately owned but in public commerce,’ but rather between a ‘private structure’ and a ‘public mercantile establishment.’ It was there held that a garage in which fuel oil and wood were stored, having a sign on the garage door reading ‘Ice and Oil,’ and from which occasional sales of oil or wood were made, was not a public mercantile establishment. We agree with the trial court that under the wording of the policy the exclusion of structures used for ‘mercantile, manufacturing, or farming purposes’ is ejusdem generis with and places limits upon the general idea of ‘private structures.’ ‘Where general words are followed by a description of specified subjects, the meaning of the general words ordinarily will be presumed to be limited to the enumerated special subjects, and to include only those things of the same nature as those specially enumerated, unless a clear manifestation of a contrary intent appears.’ Jenkins v. Jones, 209 Ga. 758, 761, 75 S.E.2d 815, 818; Beck v. Wade, 100 Ga.App. 79, 82, 110 S.E.2d 43. We also agree with the trial court that the use of the garage by the insured as a shop in which he could paint and repair automobiles did not render it a mercantile or manufacturing establishment.

        The trial court properly overruled the motion for judgment notwithstanding the verdict.

        Judgment affirmed.

        FELTON, C. J., and JORDAN, J., concur.

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