Ann Burns held a life estate in a house that was destroyed by fire. Mitchell Weiss was the trustee of the Kent Burns Trust, which held the remainder interest in the house.

Burns insured her interest in the house with Fair Plan. The trust insured its interest in the same house with Clarendon National Insurance Co.

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Clarendon estimated a cost of $480,722 to demolish and reconstruct the house. But Fair Plan estimated a $474,000 replacement cost. The two insurers determined Burns and the trust were not both entitled to the full insured amount on their insurance policies, but that payment should be on a pro rata basis.

Burns was paid $279,410 by Fair Plan and the Trust was paid $198,793 by Clarendon. Burns and the Trust sued their insurers for breach of the duty of good faith and fair dealing, as well as breach of contract. The insureds argued they should each be paid their full policy limits rather than the pro rata payments because neither party has a duty to rebuild the house.

If you were the judge would you order the two insurance companies to pay their insureds up to the policy limits?

The judge said no!

Burns and the trust each held separate insurable interests in the same property, the judge began. Each was required to obtain fire insurance to protect their respective interests, he added.

Under state law, the judge explained, neither Burns nor the trust has an obligation to repair or rebuild destroyed property.

“Our Supreme Court long ago recognized that the nature of insurance does not provide for recovery in excess of the value of the property destroyed where there is but one loss,” the judge emphasized. Therefore, multiple insurers of the same property are not required to pay more than the total loss so a pro rata payment by each insurer is proper in this situation, the judge ruled.

Based on the 2007 California Court of Appeal decision in Burns v. California Fair Plan, 152 Cal.App.4th 646.

(For more information on Bob Bruss publications, visit his
Real Estate Center

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