Neb. Supreme: Ambiguous Policy Language Requires Insurer to Pay for Renovations

An ambiguous “extra expense” provision in a commercial property insurance policy requires the insurer to pay for new equipment that a grocery store and delicatessen needed for a new location after its former home burned down, the Nebraska Supreme Court ruled Friday.

The high court reversed a portion of a ruling by a Cherry County District Court judge that dismissed a $159,878.53 extra expense claim filed by Old Mill Bulk Foods. The unanimous opinion said the policy written by North Star Mutual Insurance Co. was not clear on whether there was coverage for substantial modifications to a replacement location.

“North Star seems to take the position that the policy does not provide coverage for remodeling expenses,” the opinion says. “However, nowhere does the policy caution the insured that its definition of ‘to equip’ differs from a ‘plain and ordinary’ definition expressed in a standard dictionary, nor does it specifically exclude coverage for what may be considered structural modification or remodeling expenses.”

Jerry and David Miller owned Old Mill, a delicatessen and grocery located in Valentine, Nebraska. A fire destroyed the building on July 2, 2018. The Millers decided not to repair or rebuild the structure and began searching for a replacement property.

The Millers found a defunct move theater in Valentine in April 2019 and decided to buy the property and lease it to their business. Substantial modifications and renovations were needed, including leveling floors, removing walls and installing lighting, electrical outlets and sinks.

North Star paid $89,050 for business personal property coverage and $199,212 for lost business income, but refused to pay the Mills’ claim for extra expenses to cover the renovation costs. The carrier filed a lawsuit in seeking a declaration that no coverage was owed for renovations to the replacement property. The Millers filed counterclaims.

Judge Mark D. Kozisek granted a motion for summary judgment filed by North Star and dismissed the Miller’s extra expense claim, but also ordered North Star to pay an additional $46,000 to replace a walk-in cooler — an expense that the insurer disputed. He also awarded the Millers $5,000 out of $33,797.99 in requested attorney fees.

The Supreme Court decision said Kozisek ruled in the insurer’s favor on the extra expense claim even though he found that provision of the policy to be ambiguous. The court said the judge was correct about the ambiguity, but that should have prompted a ruling in favor of the policyholder.

According to the opinion, the policy does not caution the insured that its promise to pay “to equip” a replacement location in the extra expense section does not include the cost of remodeling.

“Thus, reading the policy from the insured’s point of view, we adopt the natural and obvious meaning of the provisions in a policy in preference to the hidden meaning suggested by North Star and hold that for purposes of the policy, the word ‘equip’ means to make ready or to furnish for service or action by appropriate provisioning and necessarily encompasses expenses incurred in modifying a replacement premises in order to continue operations, such as costs associated with electrical improvements, plumbing improvements, structural improvements, and materials used in those improvements,” the opinion states.

The Supreme Court reversed the portion of the District Court ruling that dismissed the Millers’ extra expense claims and remanded the case, directing the trial court to also recalculate its attorney fee award.