Prior to attending law school, I obtained my life insurance license. One of the main principles they teach you during your class is that purchasing property insurance is not a way to make money (at least from the policyholder’s perspective). Insurance is purchased to make you whole again if you experience a loss. No matter how many insurance policies you have for your property, you cannot recover more than the market value of your property. Such was the situation in the recent appellate decision in Pye v. Fidelity National Property and Casualty Insurance Company.1
Jeffrey and Theresa Pye owned a two-unit residential building in Galveston, Texas. In 2007, an appraiser estimated the market value to be $195,000. The building was insured against floods by Fidelity under the National Flood Insurance Program for $205,400 and an additional %50,000 for contents coverage. They also had a policy with Texas Windstorm Insurance Association that covered damages related to wind.
Hurricane Ike severely damaged the Pyes’ property to the point their home was a total loss. The Pye’s sued and eventually settled with their wind insurer for $66,765.84. They also claimed damaged from Fidelity who paid them $76,968.23 for building and $30,367.49 for contents damage. The Pyes contested that amount and issued a new proof of loss for $175,180. In 2010, the Pyes sold their house unrepaired for $58,000. Fidelity hired their own estimator when suit was filed in 2011 who came back with a $147,430.01 actual cash value estimate.
The court found Fidelity’s estimate to be more reliable and applied Texas’s “one satisfaction rule,” which bars plaintiffs from recovering twice for the same injury. This rule meant the Pye’s cannot recover more than the total damage to their home collected from both policies. It determined that the $143,734.07 ($66,765.84 from wind and $76,968.23 from Fidelity) from building damage plus the $58,000 received from the sale of the property exceeded the pre-Ike market value of $195,000.00. Therefore, the court awarded no additional money for building damage.
Both parties agreed that under the SFIP, federal law applies and not Texas law. Therefore, Texas’s “one satisfaction rule,” doesn’t apply. The court agreed but ultimately sided with Fidelity applying federal common law which limits the Pyes’ coverage total recovery from both of their insurers to the total value of their loss. In what appeared to be a difference in phrasing, the court applied the bar on “double recovery.”2 Although the insurance policies cover different risks to the same property, the Court deferred to the well-settled principle that “[p]roperty insurance creates a contract of indemnity”3
The court also made another important determination in dicta when concluding, “the federal common law governing flood policies at least allows for consideration of market value in determining the total loss amount for double recovery purposes.”
I leave you with yet another baseball quote from Hall of Famer Jackie Robinson, “Baseball is like a poker game. Nobody wants to quit when he’s losing; nobody wants you to quit when you’re ahead.” Many people feel like they were short-changed by insurance companies. However, policyholders must be more aware of that fine line between indemnity and profit (or greed).
1 Pye v. Fidelity National Prop. & Cas. Ins. Co., (5th Cir. Nov. 6, 2015).
2 See, e.g., Bradley v. Allstate Ins. Co., 620 F.3d 509, 521-22 (5th Cir. 2010); AAA Mid-Atl. Ins. Co. v. Ryan, 84 A.3d 626, 634 (Pa. 2014); Robichaux v. Nationwide Mut. Fire Ins. Co., 81 So.3d 1030, 1038 (Miss. 2011).
3 12 Couch on Insurance § 175:5.