Does The Manner/Method of Storing Materials At A Shop or On-Site Make A Difference?
According to the 7th Circuit it does when someone seeks payment for those materials by submitting a claim to an insurance company.
One method of recovering for materials on a site or at a shop that have been damaged by a storm or rain is to submit a claim to the property insurer. Most property insurance policies have an “in the open” exclusion. The terms of the exclusion may vary, and that variance is important, but the exclusion is usually present.
Oddly, up until recently, the issue of interpreting the phrase “in the open” from a property policy’s exclusion hadn’t been litigated in front of the 7th Circuit… which is where the case of Twenhafel v. State Auto Property and Casualty Ins. Co. (Doc. No. 08-4275) comes in.
The facts of the case from the opinion are worth reiterating in full:
“Twenhafel manufactures kitchen and bathroom cabinets. On September 22, 2006, a violent storm blew through Murphysboro, Illinois, where Twenhafel’s business is located. Before the storm, Twenhafel had some of the wood inventory he uses to make cabinets stored outdoors under an industrial covering or tarp. The tarp was secured with six-by-six oak beams and large concrete blocks which weighed about ninety pounds each and had been placed on top of the tarp. The storm lifted the tarp, along with the beams and blocks, and dropped them on the roof of a building about 150 feet away. As a result of the violent storm, the wood inventory was damaged by rain. The storm did not cause any other damage to Twenhafel’s property, except for some minor damage to the building’s roof, which was repaired by Twenhafel’s employees. The insurance policy State Auto issued to Twenhafel was an “open peril” policy which covers all losses unless specifically excluded under the terms of the policy. Twenhafel made a claim under the policy for the loss of his wood inventory. State Auto denied Twenhafel’s claim, relying on the following specific policy exclusion:
CAUSES OF LOSS—SPECIAL FORM
B. Exclusions
2. We will not pay for loss or damage caused by or resulting from any of the following:
. . . .
j. Rain, snow, ice or sleet to personal property in the open.”
The plaintiff filed suit to recover the money for the damaged lumber from his insurance. The trial court found in favor of the plaintiff and the insurance company appealed the determination.
The appellate court agreed with the district court that the phrase “in the open” was commonly understood to mean something that was “exposed to the elements” and not simply “outside.”
In reaching this determination the court pointed other cases that also offer examples of stored materials at a construction site being damaged by the elements and other courts’ determinations.
One case the court analogized to that provides another example of this form of storage was Victory Peach Group, Inc. v. Greater N.Y. Mut. Ins. Co., 707 A.2d 1383 (N.J.Super.Ct.App.Div.1998)
In the Victory Peach case from the New Jersey Appellate Court, the plaintiff stored personal property in a building with a damaged roof that was being repaired. Tarps were nailed over portions of the roof because the repairs couldn’t be completed in one day. A rainstorm blew the tarps off the roof and water got into the building and damaged the plaintiff’s stored property. The policy exclusion was similar and the New Jersey court found for the plaintiff against the insurance company holding that nothing in the method of protecting the property left it open to the elements.
Another example in the court’s finding came from a case in Texas and can be found in the opinion, in that case, there was no reimbursement for the damage to steel at a construction site after a rain storm, but it involved slightly different “in the open” exclusion language that included rust.
One thing is for certain, don’t cover the materials at a site with newspapers… the opinion and the oral argument took pains to contradict an “absurd” position from the insurance company:
“State Auto contends that equating the phrase “in the open” with “exposed to the elements” would lead to an absurd result because such an interpretation does not take into account the adequacy of the protection in question. State Auto argues that, under such an interpretation, a pile of wood covered by newspapers would not be “in the open” because the wood was not “exposed to the elements.” We find State Auto’s contention without merit because a reasonable person would not think that newspapers would protect property from exposure to the elements. Therefore, the interpretation does not lend itself to absurdity.” Slip Op. at 9.
The oral argument in this case is filled with the questions from the judges posing “construction site” hypotheticals to the attorney and can be heard here.
The lessons are not only to remember to make sure that there’s some policy covering the materials that are stored at a site or at a shop, but also to make certain that the way they’re preserved at that location doesn’t keep someone from getting paid if they’re damaged.
