Plaintiff Too Cheap to Pay Premium

Marc Zimet secured a defense verdict in an action where plaintiffs alleged our client, an insurance broker, failed to place a requested Builder’s Risk Policy. Plaintiffs purchased an older commercial office building which was in need of repairs and remodel work. As a condition for the close of escrow plaintiffs contacted our client and obtained a quote of $595 for a policy which provided coverage limits up to the anticipated amount of repairs to be made after the close of escrow.

Proof of insurance was provided to the lender and escrow closed. The purchase price of the building was $925,000. Within days of the close of escrow substantial rains occurred which caused significant additional damage to the subject property. During this same period of time our client discovered he could not place the policy based on the original limits as the insurer would only issue a policy based on the total value of the building and the anticipated costs of the post purchase improvements.

The broker recalculated the premium at $1,700, but plaintiffs refused to pay the new amount. As a result, the broker refunded the original $595 premium to plaintiffs. Approximately 45 days later, plaintiffs tendered a claim for damages due to the rains to the insurer identified on the proof of insurance provided by our client, the broker, to the lender prior to the close of escrow. The instant litigation followed after the insurer denied the tender.

The matter proceeded to trial on the bifurcated issue of coverage afforded under the policy and, in particular, the effect of an endorsement which extended coverage to the pre-existing structures on the property, which would otherwise have been excluded under the standard Builder’s Risk Policy. Plaintiffs claimed the endorsement should be given effect; however, the court disagreed and entered judgment for our client.

The parties submitted the matter based on stipulated facts which included that no work of improvement had begun by the time the rains began and that Plaintiffs had declined to pay the greater premium amount, which had been calculated based on the total value of the property. In rendering its judgment the court found that the endorsement only had effect, based on the language endorsement itself, “when it is attached to the policy and a fee has been paid.”

Because Plaintiffs had admitted they refused to pay the premium which was based on the inclusion of the value of the existing structure, no “fee” had been paid for the endorsement. Further, since no work of improvement had begun after the close of escrow, any structures damaged must have been “pre-existing” so there was no potential for coverage at the times of the rains.

Judgment was entered in favor of the defendant broker and a cost bill is currently being pursued based on a CCP 998 offer early in the case where defendant offered to resolve the case for $10,000.