Bernert v. State Farm Fire and Casualty Company

Filing 36

OPINION AND ORDER REGARDING CROSS-MOTIONS FOR SUMMARY JUDGMENT. Denying Plaintiff's 30 MOTION for Summary Judgment and Granting Defendant's 34 MOTION for Summary Judgment. Signed by District Judge Gerald E. Rosen. (RGun)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

CAROL BERNERT,
Plaintiff,

Case No. 10-12359

v.

Hon. Gerald E. Rosen

STATE FARM FIRE AND CASUALTY
COMPANY,
Defendant.
____________________________________/
OPINION AND ORDER REGARDING
CROSS-MOTIONS FOR SUMMARY JUDGMENT
At a session of said Court, held in
the U.S. Courthouse, Detroit, Michigan
on
March 29, 2012
PRESENT: Honorable Gerald E. Rosen
Chief Judge, United States District Court
I. INTRODUCTION
Plaintiff Carol Bernert commenced this action in state court on February 10, 2010,
seeking to invoke an appraisal provision in a homeowner’s insurance policy issued to her
by Defendant State Farm Fire and Casualty Company. Through this appraisal procedure,
Plaintiff sought to resolve a dispute with Defendant concerning the appropriate amount of
insurance benefits owed to her as a result of water damage sustained to her home on
January 17, 2009. Defendant removed the case to this Court on June 15, 2010, citing the
parties’ diverse citizenship and alleging that the statutory amount-in-controversy

requirement was satisfied by virtue of a difference of over $90,000 in the parties’
estimates of the cost to repair the damage to Plaintiff’s residence. Following removal,
Plaintiff amended her complaint to assert state-law claims of breach of contract and
violation of a provision in Michigan’s Insurance Code that mandates prompt payment of
claims. See Mich. Comp. Laws § 500.2833(1)(p).
Through the present cross-motions, each party seeks an award of summary
judgment in its favor on Plaintiff’s claims for insurance coverage. In support of her
motion, Plaintiff contends that the Michigan Insurance Code dictates a reading of her
homeowner’s insurance policy as paying full replacement cost — that is, the full amount
expended to repair the water damage to her home, using new materials that are of the
same or similar type and quality as those found in her home prior to the damage. Plaintiff
further argues that the deductible she must pay under the policy is limited to three percent
of the amount of her loss, rather than three percent of the overall policy coverage limit as
contended by Defendant. For its part, Defendant maintains that the language of
Plaintiff’s policy is clear and unambiguous, and that this policy pays only the cost of
repair using common construction techniques and materials, as opposed to the custom
materials used to construct Plaintiff’s historic home.
These cross-motions have been fully briefed by the parties. Having reviewed the
parties’ motions, briefs, and accompanying exhibits, the Court finds that the relevant
allegations, facts, and legal issues are adequately presented in these written submissions,
and that oral argument would not aid the decisional process. Accordingly, the Court will
2

decide the parties’ cross-motions “on the briefs.” See Local Rule 7.1(f)(2), U.S. District
Court, Eastern District of Michigan. This opinion and order sets forth the Court’s rulings
on these motions.
II. FACTUAL BACKGROUND
The pertinent facts in this case are undisputed. Plaintiff Carol Bernert owns a
home at 2535 Iroquois Street in Detroit, Michigan. This residence is a 12,000-square-foot
home that was built in 1914 and is located in the city’s historic Indian Village
neighborhood. As befitting its historic nature, Plaintiff’s home includes such features as
teak wood flooring and custom plaster and paneling. Plaintiff and her late husband
purchased the Iroquois residence for $42,500 in the early 1980s, via a land contract that
was paid off in full. She subsequently refinanced the property, and had a mortgage
balance of approximately $700,000 at the time of her deposition in this case.
In or around August of 2007, Plaintiff obtained a homeowner’s insurance policy
for the Iroquois property from Defendant State Farm Fire and Casualty Company. At the
time, Defendant determined that the cost to replace Plaintiff’s dwelling in the event of a
total loss would be over $1.1 million. Plaintiff, however, selected a coverage limit of
$701,700, (see Defendant’s Motion, Ex. C, Policy Renewal Certificate), or roughly 59
percent of the total cost of replacement as determined by Defendant, with this lower
amount presumably deemed sufficient to satisfy the outstanding balance on Plaintiff’s
mortgage and thereby protect the mortgagee’s interest. Plaintiff also selected a deductible
that was identified in the policy declarations as “3.00% 21,051,” (id.), with the latter
3

figure representing three percent of the total coverage limit of $701,700.
The declarations page of Plaintiff’s homeowner’s insurance policy identified the
coverage on her dwelling as “A2 Replacement Cost - Common Construction.” (Id.) The
policy defines “A2 Replacement Cost - Common Construction” coverage as follows:
We will pay the cost to repair or replace with common construction and for
the same use on the premises shown in the Declarations, the damaged parts
of the property covered under SECTION I - COVERAGES, COVERAGE
A - DWELLING, except for wood fences, subject to the following:
(1)

we will pay only for repair or replacement of the damaged part of the
property with common construction techniques and materials
commonly used by the building trades in standard new construction.
We will not pay the cost to repair or replace obsolete, antique or
custom construction with like kind and quality.

(Defendant’s Motion, Ex. C, Policy at 11.)
Defendant offers a second type of coverage, which it refers to as “A1 Replacement
Cost - Similar Construction” coverage. A provision in Plaintiff’s policy defines this “A1”
coverage as follows:
We will pay the cost to repair or replace with similar construction and for
the same use on the premises shown in the Declarations, the damaged part
of the property covered under SECTION I - COVERAGES, COVERAGE
A - DWELLING . . . .
(Id.) This provision lacks any language limiting the cost of repair or replacement to
“common construction techniques and materials commonly used by the building trades in
standard new construction,” as is found in the policy’s description of “A2” coverage.
On January 17, 2009, Plaintiff’s Iroquois residence sustained extensive water
damage as a result of a broken pipe. In light of the “A2” coverage provided under
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Plaintiff’s homeowner’s insurance policy, Defendant took the position that it was required
to pay Plaintiff the cost to repair the damaged plaster ceilings and walls of her home using
drywall, and the cost of replacing the damaged teak flooring using oak or hardwood
flooring materials. After withholding a $21,051 deductible, Defendant paid Plaintiff the
sum of $15,288.52 for the damage sustained to her residence,1 plus an additional amount
to compensate for the damage to the contents of her home.
In Plaintiff’s view, however, she is entitled to be compensated for the full
replacement cost of repairing the damage to her home — namely, repair of the damaged
plaster ceilings and walls with plaster, and replacement of the damaged teak flooring with
teak flooring. Plaintiff further maintains that her deductible should be limited to three
percent of the loss she sustained, rather than three percent of the $701,700 overall policy
coverage limit. Through her claims in the present suit, she seeks to recover these
additional amounts allegedly owed to her under her homeowner’s policy, as well as the
interest allegedly owed to her under Michigan law as result of Defendant’s purported
failure to promptly pay the full amounts to which she is entitled under the policy.
III. ANALYSIS
A.

The Standards Governing the Parties’ Cross-Motions
Through the present cross-motions, both Plaintiff and Defendant seek awards of
1

Although Defendant suggests in its motion that it paid $27,387.52 to Plaintiff, the
payment log cited as support for this figure instead reflects loss amounts (minus the deductible)
of $15,288.52 for Plaintiff’s residence and $1,219.64 for its contents, for a total of $16,508.16.
(See Defendant’s Motion, Ex. E, Payment Log.) It is unclear how Defendant derived the higher
payment amount set forth in its motion.
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summary judgment in their favor on the insurance coverage disputes outlined above.
Under the pertinent Federal Rule, “[a] party may move for summary judgment,
identifying each claim or defense — or the part of each claim or defense — on which
summary judgment is sought,” and “[t]he court shall grant summary judgment if the
movant shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). As the Supreme Court has
explained, “the plain language of Rule 56[] mandates the entry of summary judgment,
after adequate time for discovery and upon motion, against a party who fails to make a
showing sufficient to establish the existence of an element essential to that party’s case,
and on which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett,
477 U.S. 317, 322, 106 S. Ct. 2548, 2552 (1986).
As noted earlier, the parties are in agreement as to the material facts here, and their
cross-motions raise only legal issues that are amenable to resolution by the Court as a
matter of law. Accordingly, the Court now turns to the questions of law presented in the
parties’ motions.

B.

Under the Express Terms of Her Homeowner’s Insurance Policy, Plaintiff Is
Entitled to Recover Only the Costs Incurred in Repairing or Replacing the
Damaged Portions of Her Home Using Common Construction Materials.
The principal issues raised in the parties’ cross-motions concern the proper

interpretation of Plaintiff’s homeowner’s insurance policy and whether this policy
comports with the applicable provisions of Michigan’s Insurance Code. Defendant
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argues that the language of Plaintiff’s policy is clear, and that it has paid Plaintiff in
accordance with the terms of the policy calling for reimbursement of the costs of repair or
replacement of the damaged portions of Plaintiff’s dwelling using common construction
techniques and materials. Plaintiff, in contrast, contends that the policy interpretation
advanced by Defendant would run afoul of the Insurance Code, and that her homeowner’s
policy must instead be construed as paying the costs to repair or replace the damaged
portions of her home using the same or similar materials as those that were damaged. As
discussed below, the Court finds that Defendant has the better of the argument on this
issue.
The proper interpretation of the terms of Plaintiff’s homeowner’s insurance policy
is a question of law for the Court, provided that the policy is not ambiguous. See Klapp v.
United Insurance Group Agency, Inc., 468 Mich. 459, 663 N.W.2d 447, 451, 453-54
(2003). Moreover, “[t]he principles of construction governing other contracts apply to
insurance policies,” and “[w]here no ambiguity exists, this Court enforces the contract as
written.” Farm Bureau Mutual Insurance Co. v. Nikkel, 460 Mich. 558, 596 N.W.2d 915,
919 (1999). In ascertaining the proper meaning of an insurance policy and determining
whether it is ambiguous, the Court must read and interpret the policy as a whole. See
Taylor v. Blue Cross/Blue Shield of Michigan, 205 Mich. App. 644, 517 N.W.2d 864, 867
(1994). “An insurance contract is clear if it fairly admits of but one interpretation,” but it
is “ambiguous if, after reading the entire contract, its language reasonably can be
understood in differing ways.” Taylor, 517 N.W.2d at 868. Nonetheless, a policy is not
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necessarily ambiguous just because it is “inartfully worded or clumsily arranged,” Raska
v. Farm Bureau Mutual Insurance Co., 412 Mich. 355, 314 N.W.2d 440, 441 (1982), and
“[m]ere disagreement among parties as to the meaning of [policy] terms does not
constitute ambiguity,” Equitable Life Assurance Society v. Poe, 143 F.3d 1013, 1016 (6th
Cir. 1998).
In this case, the Court readily concludes that the pertinent terms of Plaintiff’s
homeowner’s insurance policy are clear and reasonably susceptible of only one meaning.
The declarations page of Plaintiff’s policy expressly identifies the coverage provided
under the policy as “A2 Replacement Cost - Common Construction.” (Defendant’s
Motion, Ex. C, Policy Renewal Certificate.) The policy then defines this level of
coverage as paying “the cost to repair or replace” any damaged property “with common
construction.” (Defendant’s Motion, Ex. C, Policy at 11.) This same policy provision
further states that the Defendant insurer “will pay only for repair or replacement of the
damaged part of the property with common construction techniques and materials
commonly used by the building trades in standard new construction,” but “will not pay
the cost to repair or replace obsolete, antique or custom construction with like kind and
quality.” (Id.) The meaning of this policy language is clear — namely, that Plaintiff’s
policy provides for repair or replacement of damaged property using common
construction techniques and materials, as opposed to custom materials of the same kind
and quality as those used in the original construction of the damaged property.
In her motion and her response to Defendant’s motion, Plaintiff does not advance a
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different reading of this policy language. In particular, she does not contend that the
above-quoted policy terms provide for reimbursement of the cost of replacement or repair
using the same materials as, or materials comparable in kind and quality to, the custom
materials previously found in her historic home. Indeed, it would be especially difficult
to construe the terms of Plaintiff’s policy as providing this sort of full replacement
coverage, where the policy expressly excludes “custom construction” costs from its
description of “A2 Replacement Cost” coverage, and where this level of reimbursement is
expressly included in the “A1 Replacement Cost - Similar Construction” coverage that
Plaintiff did not select. Likewise, Plaintiff does not argue that the payments actually
made to her by Defendant failed to comport with her “A2” policy and its limitation to
“common construction techniques and materials,” nor does she contend in her
submissions to the Court that she was misinformed or misled as to the level or type of
coverage provided under her “A2” policy.2
Instead, Plaintiff’s effort to obtain full “replacement cost” reimbursement rests
solely upon the proposition that the “A2” coverage limits contained in her homeowner’s
policy purportedly are “contrary to the provisions” of Michigan’s Insurance Code, and are
2

Plaintiff arguably suggested at her deposition that she was misled as to the type of
coverage she was purchasing, (see Defendant’s Motion, Ex. A, Plaintiff’s Dep. at 26-27), but she
has not pursued any such argument in her summary judgment motion or in her brief in
opposition to Defendant’s motion. In any event, the Michigan courts have held that “an insured
is obligated to read his or her insurance policy and raise any questions about the coverage within
a reasonable time after the policy is issued,” and that even “if the insured has not read the policy,
he or she is nevertheless charged with knowledge of [its] terms and conditions.” Casey v. Auto
Owners Insurance Co., 273 Mich. App. 388, 729 N.W.2d 277, 283 (2007) (footnotes with
citations omitted).
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therefore deemed “absolutely void” under the Code. See Mich. Comp. Laws § 500.2860.
The starting point of this challenge is the Insurance Code’s definitions of a “repair cost
policy” and a “replacement cost policy.” As to the former, the Code provides:
“Repair cost policy” means a home insurance policy for which the
amount of coverage under the policy is based substantially on the market
value of the property, and which provides for payment for repair,
rebuilding, or replacement of losses or damages to real property with
materials of like kind and quality, without depreciation, pursuant to [Mich.
Comp. Laws § 500.2826], or with conventional materials and construction
methods, pursuant to the standards of [Mich. Comp. Laws § 500.2827].
Mich. Comp. Laws § 500.2104(2). A “replacement cost policy,” in contrast, is defined as
a “home insurance policy for which the amount of coverage under the policy is based
substantially on the replacement cost of the property, which provides for settlement of
losses to real property pursuant to the standards prescribed in [Mich. Comp. Laws §
500.2826].” Mich. Comp. Laws § 500.2104(3).
As indicated in these definitions, a “repair cost policy” within the meaning of the
Insurance Code may provide coverage in accordance with either of two statutory
provisions. Under the first, the insurer agrees to reimburse the insured for the “amount
actually expended to repair, rebuild, or replace [damaged property] with new materials of
like size, kind, and quality.” Mich. Comp. Laws § 500.2826. Under the second, the
insurer agrees to reimburse the insured for the “amount actually necessary to repair,
rebuild, or replace the lost or damaged insured property to a condition and appearance
similar to that which existed at the time of the loss or damage based on the use of
conventional materials and construction methods which are currently available without
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extraordinary expense.” Mich. Comp. Laws § 500.2827(1). A “replacement cost policy”
within the meaning of the Code, however, provides coverage in accordance with §
500.2826 only — i.e., reimbursement of the cost to repair or replace damaged property
with “new materials of like size, kind, and quality.”
The “A2” homeowner’s insurance policy in this case most closely comports with
the standards of § 500.2827, as it provides coverage for the cost of repair or replacement
of damaged property using “conventional materials and construction methods” — or, as
similarly stated in the policy, “common construction techniques and materials.” Under
the terminology of the Insurance Code, then, Plaintiff’s “A2” policy would be properly
characterized as a “repair cost policy.” Yet, Defendant has designated the coverage under
this policy as “A2 Replacement Cost - Common Construction” coverage. In Plaintiff’s
view, by attaching the “Replacement Cost” label to its policy, Defendant has obligated
itself to provide coverage in accordance with the Insurance Code’s definition of a
“replacement cost” policy — that is, coverage of the cost of repair or replacement “with
new materials of like size, kind, and quality.” Mich. Comp. Laws § 500.2826. Because
the policy at issue here does not provide this level of coverage, but instead provides
coverage more akin to a “repair cost policy” as set forth at § 500.2827, Plaintiff argues
that the policy should be deemed contrary to the Insurance Code, and thus void.
The Court cannot agree. It is clear that the Defendant insurer here was authorized
under the Michigan Insurance Code to issue a homeowner’s policy to Plaintiff that
limited her recovery for lost or damaged property to “the amount actually necessary to
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repair, rebuild, or replace the lost or damaged insured property to a condition and
appearance similar to that which existed at the time of the loss or damage based on the
use of conventional materials and construction methods which are currently available
without extraordinary expense.” Mich. Comp. Laws § 500.2827(1). As discussed above,
the policy actually issued to Plaintiff fits comfortably within these statutory parameters,
as it covers the cost of repair or replacement using “common construction techniques and
materials commonly used by the building trades in standard new construction,” but does
not pay the cost to repair or replace “custom construction with like kind and quality.”
(Defendant’s Motion, Ex. C, Policy at 11.) Although this policy provision does not
precisely mimic the language of § 500.2827(1), Plaintiff has not endeavored to explain
how any minor divergence from the statutory language should render the policy void
under the Insurance Code.
Instead, Plaintiff’s effort to void the policy rests solely upon the caption Defendant
has chosen to place on this policy provision — i.e., Defendant’s characterization of the
policy coverage as “A2 Replacement Cost - Common Construction.” Yet, while the
Insurance Code delineates the types of coverage an insurer may offer, see Mich. Comp.
Laws §§ 500.2826, 500.2827(1), and while it elsewhere defines the terms “repair cost
policy” and “replacement cost policy” by reference to these two types of coverage, see
Mich. Comp. Laws § 500.2104(2)-(3), Plaintiff has failed to direct the Court’s attention to
any provision in the Code that dictates the caption an insurer must place on its coverage
provisions. Nor, more generally, has Plaintiff identified any Code provision that
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mandates the particular words that must be used to describe coverage that pays the cost of
using “conventional materials and construction methods,” § 500.2827(1), versus the cost
of repair or replacement with “new materials of like size, kind, and quality,” § 500.2826.
To be sure, the Insurance Code deems it an “unfair or deceptive act or practice in
the business of insurance” to “[m]isrepresent[] the terms, benefits, advantages, or
conditions of an insurance policy,” or to “[u]se[] a name or title of an insurance policy . . .
[that] misrepresent[s] the true nature of that insurance policy.” Mich. Comp. Laws §
500.2005(a), (e). The Code further provides, however, that “[a] policy approved by the
commissioner shall be conclusively presumed not to misrepresent the true nature of that
policy.” Mich. Comp. Laws § 500.2005(e). Defendant states without contradiction that
the policy at issue here “has been used by [Defendant] in Michigan since 1998, and was
approved by the Insurance Commissioner.” (Defendant’s Response Br. at 8-9).
Moreover, the policy itself clearly and explicitly defines its “A2 Replacement Cost Common Construction” coverage, and it also describes the contrasting “A1 Replacement
Cost - Similar Construction” coverage that Defendant offers but Plaintiff did not choose.
Against this backdrop, the Court fails to see how Defendant’s shorthand characterization
of the policy coverage as “A2 Replacement Cost - Common Construction” renders the
policy suspect, much less void, under the Michigan Insurance Code.3
3

Notably, if Defendant had captioned the coverage conferred under Plaintiff’s policy as
“A2 Repair Cost,” and thereby removed the purportedly misleading reference to “replacement
cost” coverage, this alone would not have cured the ambiguity complained of by Plaintiff here.
Under the Insurance Code, a “repair cost policy” may provide the coverage described in either §
500.2826 (which authorizes “like kind and quality” coverage) or § 500.2827(1) (which
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Indeed, while Plaintiff wishes to elevate the policy’s “A2 Replacement Cost”
caption over the language of the policy itself, it is worth noting that the overall amount of
coverage chosen by Plaintiff is inconsistent with the Insurance Code’s definition of a
“replacement cost policy.” Under this definition, one requirement of a “replacement
cost” policy is that “the amount of coverage under the policy is based substantially on the
replacement cost of the property.” Mich. Comp. Laws § 500.2104(3).4 At the time
Plaintiff obtained her homeowner’s policy, Defendant states without contradiction that
the replacement cost of her home was over $1.1 million. Yet, Plaintiff selected a lower
coverage limit of $701,700, which was approximately 59 percent of the total cost of
replacement. This choice, with its attendant lower premiums, further undermines
Plaintiff’s claim that she is entitled to coverage consistent with a “replacement cost”

authorizes reimbursement using “conventional materials and construction methods”). See Mich.
Comp. Laws § 500.2104(2) (defining a “repair cost policy” as providing either of these two
types of coverage).
Consequently, because the costs paid under “repair cost” and “replacement cost” policies
do not necessarily differ, an insured must look to the terms of the policy itself to determine the
level of coverage provided under a so-called “repair cost” policy. It is not an especially
compelling complaint, then, that the caption of Plaintiff’s policy alone did not clarify the level of
coverage the policy provided. Nor is it reasonable to believe that a layperson such as Plaintiff
would be so well versed in the Insurance Code that her policy’s reference to “Replacement Cost”
necessarily would have led her to conclude that the policy provided the coverage specified under
§ 500.2826, despite its language that more closely tracked the coverage described in §
500.2827(1).
4

A “repair cost” policy, in contrast, is defined as providing an amount of coverage that is
“based substantially on the market value of the property.” Mich. Comp. Laws § 500.2104(2).
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policy as that term is defined under the Michigan Insurance Code.5 Rather, the Court
finds, in accordance with the plain language of Plaintiff’s policy, that she is entitled to
reimbursement only for the cost to repair or replace her damaged property using
“common construction techniques and materials,” and the Court sees nothing in the
Insurance Code that would override this clear policy language.
C.

Plaintiff’s Homeowner’s Insurance Policy Unambiguously Sets Her
Deductible at Three Percent of the Policy’s Coverage Amount, or $21,051.
Plaintiff’s remaining argument for an additional recovery under her homeowner’s

insurance policy warrants only brief discussion. The declarations page of Plaintiff’s
policy states that the deductible for all losses covered under Section I of the policy is
“3.00% 21,051,” (Defendant’s Motion, Ex. C, Policy Renewal Certificate), with the latter
figure reflecting 3 percent of the overall coverage amount of $701,700. When paying
Plaintiff’s claim arising from the water damage to her home, Defendant first withheld a

5

In fact, Defendant points out that under the Insurance Code, an insurer could have
declined to issue a replacement cost policy to Plaintiff unless she elected to “purchase an amount
of insurance equal to at least 80% of the replacement cost of the property insured.” Mich. Comp.
Laws § 500.2103(2)(d); see also Mich. Comp. Laws § 500.2117(2)(a) (requiring insurers to issue
homeowner’s insurance policies based only on the criteria set forth in § 500.2103(2)); Mich.
Comp. Laws § 500.2117(2)(i) (identifying this 80% threshold as a permissible ground upon
which an insurer may decline to issue a replacement cost policy). An insured who wishes to
purchase a repair cost policy, in contrast, need only “purchase an amount of insurance equal to at
least 100% of the market value of the property insured.” Mich. Comp. Laws § 500.2103(2)(e).
As Defendant observes, the clear intent of these and related Insurance Code provisions is “to
permit insurer[]s to offer repair cost coverage at a cost less than replacement cost coverage.”
(Defendant’s Response Br. at 7.) By choosing an amount of coverage well below the 80 percent
threshold and paying premiums commensurate with this choice, Plaintiff evidently elected to
take advantage of this lower cost option made available under the Insurance Code, but at the
expense of satisfying the criteria for a “replacement cost policy” as defined under the Insurance
Code.
15

$21,051 deductible before paying Plaintiff the sum of $15,288.52 for the damage
sustained to her residence. (See Defendant’s Motion, Ex. E, Payment Log.) Plaintiff,
however, contends that the policy should be construed as establishing a deductible equal
to 3 percent of the loss — in this case, 3 percent of roughly $37,000, or just over $1,000
— rather than 3 percent of the overall amount of policy coverage. The Court readily
concludes that this proposed reading of the policy is not tenable.
Plaintiff’s argument on this point rests upon a purported ambiguity in the policy,
which defines the deductible by reference to two figures, “3.00%” and “21,051.” In
Plaintiff’s view, if Defendant meant to establish a flat deductible of $21,051 for all
claims, there was no need to include the “3.00%” language. It follows, according to
Plaintiff, that the policy’s reference to “3.00%” must be meant to serve a purpose distinct
from the reference to “21,051.” Yet, the policy fails to specify the amount to which this
“3.00%” figure should be applied. Plaintiff suggests that this purported ambiguity should
be resolved in her favor and against the drafting insurer, with the policy construed as
setting a deductible of 3 percent of the amount of loss, as opposed to 3 percent of the
overall coverage amount.
The Court fails to see how any ambiguity arises from policy language that
expresses the same deductible amount in two different ways. If the policy referred only
to the “21,051” figure, Plaintiff presumably would agree that this policy language would
unambiguously establish a flat deductible of $21,051 for all claims. To be sure, the
policy’s additional reference to “3.00%” presents at least the potential for confusion or
16

ambiguity, rather than clarity, because the policy fails to explicitly specify an overall
amount or formula to which this 3 percent should apply. Yet, this “3.00%” reference
appears immediately below the overall coverage limit of $701,700 and immediately
adjacent to the reference to “21,051,” and it surely cannot be viewed as a coincidence that
3 percent of the overall coverage limit of $701,700 yields $21,051 — the very amount set
forth in the policy immediately after its reference to “3.00%.” Thus, any potential
mystery associated with the policy’s unadorned reference to “3.00%” is easily solved by
resort to the immediately adjacent policy language.
Plaintiff’s efforts to create an ambiguity from this language are not persuasive.
First, she suggests that Defendant’s interpretation of the policy would render its reference
to “3.00%” mere surplusage, because the “21,051” figure alone would be sufficient to
establish a flat deductible in this amount. As Defendant observes, however, a policy’s
overall coverage limits often change with each annual policy renewal, and the policy’s
reference to “3.00%” allows the insured to understand why (and in what amount) the
deductible changes as the total amount of coverage changes. The “3.00%” figure, then,
serves to inform the insured as to the formula used by the insurer to compute the
deductible amount set forth in the policy, and enables the insured to anticipate changes in
this deductible amount as the overall coverage limits change over time.
Indeed, it is Plaintiff’s proposed interpretation, rather than Defendant’s, that would
create a surplus of policy language, or at least engender confusion. Under Plaintiff’s
preferred construction, the policy’s reference to “21,051” would be largely unnecessary
17

and arguably misleading, as it would represent only the maximum deductible that could
result from Plaintiff’s suggested 3-percent-of-loss formula. Yet, there would be no
accompanying policy language — e.g., “up to” or “maximum of” — indicating that this
“21,051” figure was something other than a flat deductible amount. And, of course, the
policy’s reference to “3.00%” likewise is unaccompanied by any language indicating that
this figure is to be plugged into an amount-of-loss formula. From the surrounding
context, then, it can hardly be said that Plaintiff’s proposed interpretation of the policy
rests upon the most natural reading of the policy language.
Finally, Plaintiff suggests that it would not “make any sense” for her homeowner’s
policy to set a deductible that would leave her without a recovery for any loss smaller
than the deductible amount, or $21,051. (Plaintiff’s Motion, Br. in Support at 3.) Yet,
this is a routine and wholly appropriate byproduct of flat deductibles, which serve as a
floor below which claims will not be made. Like other insureds, Plaintiff surely is
familiar with the customary trade-off between higher deductibles and lower premiums,
and nothing in the record suggests that she failed to receive the benefit of the bargain she
struck with Defendant by selecting the $21,051 deductible set forth in her policy.
Accordingly, the Court finds that Defendant acted in accordance with the terms of
Plaintiff’s homeowner’s insurance policy by withholding a $21,051 deductible from the
amount paid on Plaintiff’s claim under the policy.

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IV. CONCLUSION
For the reasons set forth above,
NOW, THEREFORE, IT IS HEREBY ORDERED that Plaintiff’s May 31, 2011
motion for summary judgment (docket #30) is DENIED. IT IS FURTHER ORDERED
that Defendant’s July 28, 2011 motion for summary judgment (docket # 34) is
GRANTED.

s/Gerald E. Rosen
Chief Judge, United States District Court
Dated: March 29, 2012
I hereby certify that a copy of the foregoing document was served upon counsel of record
on March 29, 2012, by electronic and/or ordinary mail.
s/Ruth A. Gunther
Case Manager

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