Carey v. American Family Brokerage, Inc.

In 1998, Michael Carey and James Fann (Carey and Fann) (plaintiffs) bought a mixed-used building in Chicago for $225,000. Carey and Fann then spent about $85,000 for improvements and repairs to the building. American Family Brokerage, Inc. (American Family) provided insurance coverage for damage to the building. The insurance contract limited coverage for building damage to either the actual cash value of the building or the repair/replacement cost, whichever was lower. Further, the contract provided that coverage for repair/replacement cost would apply only if the building was actually repaired or replaced. In 2001, a fire extensively damaged the building. Carey and Fann submitted an insurance claim to American Family. American Family then hired an appraiser who valued the building replacement cost at $398,725. However, American Family denied coverage on the ground that Carey and Fann participated in arson that caused the fire, and arson damage was excluded by the insurance contract. Carey and Fann sued American Family for breach of the insurance contract, and the case went to a bench trial. The appraiser testified that her valuation of the building loss was higher than the actual cash value of the loss. The appraiser explained that to calculate the actual cash value of the loss, she would subtract depreciation from her valuation. Evidence was also presented on the arson issue. The trial court found that American Family had failed to prove arson. The court awarded damages to Carey and Fann for the building loss. To calculate the damages, the court relied on the appraiser’s valuation, reduced by $15,000: $1,000 for the policy deductible and $14,000 for emergency repairs that American Family had already covered. American Family appealed the damages award. The trial court also awarded damages for loss of rental income and business personal property; those awards were not appealed.