Some jurisdictions have what is known as a valued policy law (“VPL”), which typically provides that in the case of a total loss, the insurer is required to pay the full policy limit regardless of the actual replacement cost value or actual cash value of the property at the time to the loss. Most of these statutes were enacted in the late 1800s and early 1900s for the purposes of attempting to prevent both insureds and insurers from overinsuring properties and the moral hazard that can create. At the time these statutes were enacted, many property insurance policies covered only the peril of fire.
Recently, a federal court interpreted Missouri’s VPL as applicable only to fire losses. Garvin v. Acuity, 2012 U.S. Dist. LEXIS 150545 (W.D. Mo. Oct. 19, 2012). Missouri’s VPL states that “in all suits brought upon policies of insurance against loss or damage by fire . . . the defendant shall not be permitted to deny that the property insured thereby was worth at the time of the issuing of the policy the full amount insured therein on said property . . . .” § 379.140 R.S.Mo.
The insured in Garvin suffered a total loss of seven buildings due to a tornado that touched down on May 22, 2011 in Joplin, Missouri. The insured argued that Missouri’s VPL, which was enacted in 1879, should be read to apply to all losses, not just fire losses, given that insurance coverage in general has expanded over time. The insured further argued that the statute should be read to apply to any policy that covers fire damage, regardless of whether the loss at issue was caused by fire. The District Court disagreed. The court first noted that while some Missouri appellate authority existed with respect to the interpretation of other Missouri “valued policy” statutes, the Missouri Supreme Court had not decided the issue, and therefore the District Court was forced to make an Erie guess as to how the Missouri Supreme Court would decide the issue. The court determined that the plain text of the statute, which states that it applies to “all suits brought upon policies of insurance against loss or damage by fire,” indicates that the VPL only applies to losses caused by fire.
While Garvin is not binding precedent on Missouri courts, it will serve as guiding precedent in litigation involving tornado losses in Missouri. It should be noted that there is a bill pending in the Missouri Senate (SB 619), which would modify Missouri’s VPL to apply to all losses, not just fire losses. If the bill is signed into law, it is unlikely that it will be applied retroactively.