Title: Allstate Insurance Company v. Charity

State: virginia

Issuer: Virginia Supreme Court

Document:

Present:  All the Justices 
 
ALLSTATE INSURANCE COMPANY 
 
v.   Record No. 970671  
OPINION BY JUSTICE ELIZABETH B. LACY 
                                       January 9, 1998 
PATRICIA A. CHARITY, ET AL. 
 
 
FROM THE CIRCUIT COURT OF THE CITY OF ALEXANDRIA 
 
Alfred D. Swersky, Judge 
 
 
In this appeal, we consider whether a proof of loss 
submitted by an insured substantially complied with the terms and 
conditions of a fire insurance policy. 
 
Allstate Insurance Company (Allstate) issued a fire 
insurance policy covering property owned by Patricia A. Charity. 
 The property was totally destroyed by a fire.  The policy 
required Charity to submit a proof of loss and required that, if 
Allstate chose to rebuild the property, it had to inform Charity 
of such decision within 30 days of receiving the proof of loss. 
 
 Charity notified Allstate of the loss and submitted a proof 
of loss on June 23, 1995.
1  In completing the form, Charity wrote 
"To be determined" in the blanks designated as "Actual Cash Value 
of said property" and "The Amount Claimed under the . . . 
policy."  On November 22, 1995, Charity submitted a second proof 
of loss containing a dollar amount for the cash value of the 
dwelling.  On December 6, 1995, Allstate notified Charity that it 
intended to rebuild the property.  When Charity refused to allow 
Allstate to rebuild the premises, Allstate filed a motion for 
declaratory judgment seeking a determination that it was entitled 
                     
 
1 Charity hired The Goodman-Gable-Gould Company, a public 
adjustment company, to assist her in the settlement of her 
claim. 
 
 
 
 
2 
to rebuild the premises pursuant to the terms of the policy. 
 
The parties stipulated the evidence and exhibits and 
submitted the case to the trial court on cross-motions for 
summary judgment.  The trial court held that the June 23 proof of 
loss substantially complied with the policy conditions, and, 
therefore, under the policy, Allstate was required to notify 
Charity that it intended to exercise its option to rebuild within 
30 days of June 23.  The trial court entered judgment in favor of 
Charity.  
 
Allstate appeals the judgment of the trial court, asserting 
that substantial compliance requires that the proof of loss 
submitted by an insured contain the dollar amount of the loss 
and, therefore, Allstate's December 6, 1995 notification to 
Charity of its intent to rebuild was timely.  Because we conclude 
that neither the conditions of the policy nor the purpose of a 
proof of loss require that the form contain the actual dollar 
amount of the loss, we will affirm the judgment of the trial 
court. 
 
We have held that the terms and conditions of a fire 
insurance policy are satisfied by a showing of reasonable and 
substantial compliance, in the absence of bad faith.  Aetna Cas. 
Co. v. Harris, 218 Va. 571, 578, 239 S.E.2d 84, 88 (1977).  In 
addition, we have determined that providing the insurer with only 
the fact of loss does not constitute substantial or reasonable 
compliance.  Id. at 578-80, 239 S.E.2d at 88-89.  Whether 
 
 
 
 
3 
substantial and reasonable compliance requires the insured to 
furnish the dollar amount of the actual cash value of the loss in 
this case depends on the requirements of the policy and the 
purpose of the proof of loss. 
 
The policy conditions relevant to the proof of loss are 
found in Part 4, Section 1, Paragraph 3 of the policy.  That 
paragraph provides that, in the event of a loss, the insured 
"must" do a number of things, one of which is to provide the 
company with a sworn proof of loss.  The paragraph also lists a 
number of items that "should" be included in the proof of loss, 
including the actual cash value and the amount of the loss of the 
items damaged or destroyed.  Allstate's deliberate use of the 
words "must" and "should" in separate parts of the same paragraph 
compels the conclusion that the words have different 
connotations.  In this context, "should" is permissive, and 
therefore, the dollar amount of the loss is not a required part 
of the proof of loss.  Even if the insurer's choice of words 
created some doubt as to whether the listed items were required 
to be included in the proof of loss form, such doubt must be 
resolved against the party drafting the policy.  Fidelity & Cas. 
Co. of New York v. Fratarcangelo, 201 Va. 672, 677, 112 S.E.2d 
892, 895 (1960).  Based on the language used, we conclude that 
the policy conditions do not require that the actual dollar 
amount of the loss be stated on the proof of loss form.
2   
                     
 
2 Code § 38.2-2105's requirement that a fire insurance 
policy "shall" contain certain provisions, including one 
 
 
 
 
4 
 
Even though the policy does not require the actual dollar 
amount in the proof of loss, the insured retains the burden to 
show that the information actually provided constitutes 
reasonable and substantial compliance with the requirement that a 
proof of loss be submitted to the insurer.  Harris, 218 Va. at 
578, 239 S.E.2d at 88.  The parties do not dispute that the 
purpose of a proof of loss is to enable the insurer to 
investigate the insured's losses, to estimate its rights and 
liabilities, and to prevent assertion of fraudulent or unjust 
claims.  Walker v. American Bankers Ins. Group, 836 P.2d 59, 62 
(Nev. 1992); Sutton v. Fire Ins. Exch., 509 P.2d 418, 419 (Or. 
1973).  If the information Charity provided was sufficient to 
allow the proof of loss to be used for these purposes, Charity 
has met her burden of substantial compliance.   
 
Allstate admits that the proof of loss submitted by Charity 
in June was sufficient to allow it to investigate the claim.  
Allstate asserts, however, that because the dollar amount of the 
loss was not on the form, it could not "determine the nature and 
extent of the loss or its liability."  As explained in oral 
argument, what Allstate means is that without Charity's statement 
of the actual dollar value of the loss, Allstate could not 
determine whether it should exercise its option to rebuild.  In 
                                                                  
calling for notification to the insurer of the "amount of loss 
claimed," does not require a different result.  Section 38.2-
2107 provides that a company may use simplified alternative 
language which is no less favorable to the insured than that 
contained in § 38.2-2105. 
 
 
 
 
5 
                    
essence, Allstate asserts that it needs to know the amount an 
insured is claiming so that it can compare that amount to what 
its investigation shows its liability may be. 
 
Having an insured's estimate of its loss undoubtedly would 
assist the insurer in structuring its position in settlement of 
the claim.
3  But the extent of Allstate's liability is determined 
by the loss itself, the policy's coverage restrictions, and the 
limits of the policy, not by the dollar amount the insured places 
on the proof of loss form.  Not knowing the dollar amount of the 
insured's claim does not affect the ability of the insurance 
company to determine the amount of its liability.  As stated by 
the trial court, "[t]here was nothing once [Allstate] got the 
proof of loss statement from Ms. Charity to prevent [it] from 
going out and conducting [its] own investigation . . . ."  
 
The information provided on the June 23 proof of loss 
allowed Allstate to investigate the loss, to determine its 
liability, and to prevent a fraudulent claim.  Therefore, the 
June 23 proof of loss substantially and reasonably complied with 
the terms of the policy and the purposes of a proof of loss. 
 
Part 4, Section 1, Paragraph 4 of the policy states that in 
order to exercise the option to rebuild the property, Allstate 
"must give you notice of our intention within 30 days after we 
receive your signed, sworn proof of loss."  When Allstate 
 
 
3 Other provisions of the policy specifically provide 
procedures for resolving disparities between the amount claimed 
by the insured and the amount offered by the insurer. 
 
 
 
 
6 
received a proof of loss which reasonably and substantially 
complied with the conditions of the policy, the thirty-day period 
began to run.  In this case, the thirty-day period began to run 
with the submission of the June 23 proof of loss.  Allstate did 
not notify Charity of its intention to rebuild the destroyed 
property within the time required by the policy conditions and, 
therefore, waived its option to rebuild. 
 
For these reasons, we will affirm the judgment of the trial 
court. 
 
Affirmed.
JUSTICE KOONTZ, with whom JUSTICE COMPTON and JUSTICE KEENAN 
join, dissenting. 
 
 
I cannot join in the result reached by the majority and, 
accordingly, I respectfully dissent. 
 
On brief, the insured stated that the "To be determined" 
answers she provided on June 23, 1995 in the blanks on the proof 
of loss form designated for the "Actual Cash Value" of the 
damaged property and the amount of her claim were "the equivalent 
of, 'I don't know now, but I'm working on it.'"  Undoubtedly that 
is true, and it makes sense when considered in light of the 
provisions of the policy, noted by the majority, that 
specifically provide procedures for resolving disparities between 
the amount claimed by the insured and the amount offered by the 
insurer.   
 
This is not a situation involving a denial of a claim by the 
insurer.  The sole issue is when, under the express terms of the 
 
 
 
 
7 
insurance contract, the completion of the proof of loss form 
triggers the thirty-day option of the insurer to pay the claim or 
to rebuild the property.   
 
In Aetna Cas. Co. v. Harris, 218 Va. 571, 578-80, 239 S.E.2d 
84, 88-89 (1977), as noted by the majority, we have determined 
that providing the insurer with the mere fact of loss does not 
constitute substantial and reasonable compliance with the 
requirements of the insurance policy to provide a proof of loss. 
 In my view, for purposes of determining whether sufficient 
information was provided to trigger the thirty-day option period, 
the proof of loss here which provided no more information to the 
insurer regarding the amount of the claim than "I don't know now, 
but I'm working on it," is really no more than a notice of loss. 
 Clearly it falls short of a proof of loss that permits the 
insurer to determine intelligently how to exercise its 
contractual options in response. 
 
For these reasons, I would hold that the thirty-day period 
within which the insurer had the right to exercise the option to 
rebuild or to pay the claim commenced on November 22, 1995, when 
the insured provided the second proof of loss statement 
containing the dollar amount for the value of the damaged 
dwelling, and I would reverse the judgment of the trial court.