Advance Cable Co. v. Cincinnati Insurancé
2015 U.S. App. LEXIS 9805
| 7th Cir. | 2015Background
- April 3, 2011 hailstorm damaged roof at 2113 Eagle Drive (owned by Advance Cable Co./Pinehurst); Advance submitted an insurance claim to Cincinnati.
- Cincinnati inspected, observed some dents, paid a small estimate (~$1,512.70 after deductible), and concluded roof performance was not affected.
- Later inspection during a prospective sale reported hail damage; Advance reopened the claim and Cincinnati re-inspected, again finding mostly minor, nonfunctional denting.
- Advance sued (diversity) alleging breach of contract (coverage for hail damage) and bad faith denial; district court granted summary judgment to Advance on coverage, denied bad faith claim; parties stipulated damages of $175,500.
- Seventh Circuit reviews de novo: affirms coverage ruling (policy covers direct physical loss/damage, including cosmetic denting) and affirms summary judgment for Cincinnati on bad faith (denial was objectively reasonable).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether policy term "direct physical loss" covers hail denting (including cosmetic dents) | Hail denting is direct physical damage; policy defines "loss" as "accidental loss or damage," so cosmetic damage is covered | "Physical" should mean material/substantial impairment; cosmetic denting that does not affect function or value is not covered | Covered: cosmetic denting is "direct physical loss/damage" under the policy; summary judgment for Advance on coverage affirmed |
| Meaning of "loss or damage" in the policy | Disjunctive language shows "damage" can be covered even without measurable loss of function/value | "Loss or damage" should be read to require harm (diminution of value/function) | Court adopts insured-favorable reading: "loss" defined as "accidental loss or damage" covers denting even if only cosmetic |
| Economic waste / appropriateness of replacing whole roof | Not contested as coverage question; replacement cost stipulated | Cincinnati argued economic waste doctrine weighs against paying full replacement for cosmetic damage | Economic-waste argument concerns damages, not coverage; court declines to deny coverage on that basis (coverage question resolved for Advance) |
| Bad faith: whether Cincinnati lacked reasonable basis or acted recklessly in denying coverage | Cincinnati’s denial was unreasonable and contradicted industry materials; sought endorsement later excluding cosmetic damage | Cincinnati had plausible legal support, investigated twice, made payments, reopened claim; its view, though incorrect, was reasonable | No bad faith: objective element met (reasonable investigation/position); summary judgment for Cincinnati on bad faith affirmed |
Key Cases Cited
- Doe v. Archdiocese of Milwaukee, 772 F.3d 437 (7th Cir. 2014) (standard of review for summary judgment)
- Strauss v. Chubb Indem. Ins. Co., 771 F.3d 1026 (7th Cir. 2014) (insurance policies construed as contracts under Wisconsin law)
- Blum v. 1st Auto & Cas. Ins. Co., 326 Wis.2d 729, 786 N.W.2d 78 (Wis. 2010) (interpretation of insurance policy from insured's perspective)
- Brethorst v. Allstate Prop. & Cas. Ins. Co., 334 Wis.2d 23, 798 N.W.2d 467 (Wis. 2011) (elements of bad faith claim against insurer)
- Anderson v. Cont'l Ins. Co., 85 Wis.2d 675, 271 N.W.2d 368 (Wis. 1978) (bad faith test: absence of reasonable basis and knowledge/reckless disregard)
- Crestview Country Club, Inc. v. St. Paul Guardian Ins. Co., 321 F.Supp.2d 260 (D. Mass. 2004) (district court case limiting "physical loss" to physical harm affecting function — discussed and distinguished)