In the case of Church Mutual Insurance Company v. Pleasant Green Missionary Baptist Church
, Pleasant Green owned a building located in St. Louis, and had an insurance policy on the building through Church Mutual which contained a cancellation and non-renewal clause as well as exclusions for concealment, misrepresentation or fraud. The policy also contained an exclusion for “wear and tear,” continuous or repeated seepage or leakage of water that occur over a period of 14 days or more, and exclusions for faulty, inadequate or defective design or construction.
In December 2012, Church Mutual sent a notice of cancellation to Pleasant Green for non-payment of the premium. Thereafter, Church Mutual sent a final billing statement indicating that the policy period had run and that the policy was cancelled. Pleasant Green paid the earned premium. Church Mutual followed with a letter to Pleasant Green acknowledging the earned premium and confirming that coverage on the policy had ceased.
Several months later, the ceiling of the building’s sanctuary collapsed. That same day, a representative of Pleasant Green contacted Church Mutual regarding the ceiling failure. Church Mutual responded that the policy had been cancelled in December 2012. Thereafter, Church Mutual received a letter that Pleasant Green was unaware of the cancellation due to reasons that were being addressed internally and that there had been confusion regarding the payment plan. Church Mutual denied the resulting request for reinstatement of the policy; however, it issued Pleasant Green a new policy that excluded coverage for damage to the sanctuary due to the ceiling collapse.
In November 2013, Pleasant Green filed a claim with Church Mutual alleging that an April 2012 hail storm had caused the loss in connection with the ceiling collapse. Church Mutual hired an adjuster to inspect and recommended that an engineer be retained to fully investigate the claim. Church Mutual also sent Pleasant Green a reservation of rights letter. Pleasant Green submitted a signed proof of loss claiming damages in excess of $2 million. Church Mutual requested that Pleasant Green submit to an examination under oath (EUO). Prior to the EUO, Pleasant Green produced to Church Mutual two engineering reports addressing the collapse of the ceiling. One of those reports stated that the original construction of the ceiling framing was inadequate and lacked positive mechanical suspension. The other report noted evidence of hail damage that had diminished the roof’s functional life and water-shedding capability.
During the EUO, a representative of Pleasant Green confirmed that it had received the December 2012 notice of cancellation, but stated the notice had been mishandled by the staff. In August 2014, Church Mutual filed an action for declaratory judgment seeking a determination of the parties’ rights and obligations under the policy. Pleasant Green filed a counterclaim alleging breach of contract and vexatious refusal to pay.
The U.S. District Court in Missouri determined that in April 2013, the policy was no longer in effect and that for Pleasant Green to succeed on its breach of contract claim, it must show that the cause of loss occurred before December 22, 2012, and that there was coverage under the policy. Church Mutual contended that Pleasant Green, among other things, failed to give prompt notice of the loss and take reasonable steps to protect the property from further damage. Pleasant Green countered that Church Mutual failed to establish that it intentionally concealed or misrepresented material facts relating to the claim. Pleasant Green also contended that it had a reasonable expectation regarding the policy coverage and provisions.
The Court found that it is beyond any genuine dispute that Pleasant Green failed to give Church Mutual prompt notice of the loss and take reasonable steps to protect the property from further damage. While the Court acknowledged that an insured will not be barred from recovering under a policy based on the breach of such a condition of prompt notice, unless the insurer can demonstrate it has been prejudiced by such breach, when all reasonable persons would conclude that notice was not given or made within a reasonable time, under all the circumstances, then the issue becomes a question of law for the court to decide.
Church Mutual also asserted that it was prejudiced by not being notified of the crack and damages when they developed. Pleasant Green made admissions in the EUO regarding the ceiling crack and acknowledged that it was aware that the damage needed to be addressed. Nevertheless, Pleasant Green did not notify Church Mutual until over one year after it noticed the ceiling crack. Pleasant Green had various excuses but none were persuasive to the court, which concluded that Pleasant Green saw a problem and realized something had to be done but neither provided prompt notice of the ceiling crack to Church Mutual nor took reasonable steps in an effort to prevent further damage.
The Court concluded that the policy was void and that Pleasant Green’s claim for breach of contract, as well as their claim for vexatious refusal to pay, also failed. It will be interesting to see if this trial court decision is appealed, and if so, what decision will be made by the Eighth Circuit Court of Appeals.
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