Michael and Vicky Poole’s house burned down in 2014. Attached to the house was a shop where Michael conducted business. The shop burned down with the house. The Poole’s insured their house with State Farm. When the Poole’s began to rebuild, they decided to build the shop as a standalone building. State Farm refused to pay for the destroyed shop on the grounds the rebuilt shop was not attached to the house.
The State Farm policy allowed for payment of damaged dwellings as well as for structures attached to the dwelling. Neither party disputed coverage for the insured house or the house’s status as a dwelling under the policy. The Poole’s, however, claimed the shop was attached at the time of the fire and should be covered. State Farm claimed the rebuilt shop was not attached, and as result, was not covered.
State Farm filed a motion for summary judgment dismissing the Poole’s claims under the policy language. Michael and Vicky Poole appealed the trial court order to the Division II Court.
Evidence showed the State Farm claim representative handling the claim admitted in a deposition the policy language could be confusing and allowed the language only required the rebuilt structure to be with similar construction and for the same use on the insured premises.
The Court determined the State Farm policy was ambiguous because it was susceptible to two different but reasonable interpretations. Precedent states an insurance policy is a contract, and, as in contracts law, ambiguous policy language is resolved against the insurer and in favor of the insured.
The Poole’s interpreted the contract to mean they would be reimbursed for the shop because it was attached at the time of the fire and the shop was rebuilt with similar materials and for the same purpose. The Court agreed with the Poole’s to resolve the ambiguity.
Until the insurance companies fix the ambiguous language, structures attached to dwellings may be rebuilt as separate buildings.