Reference no: EM132232773
Risk Management and Insurance Subject
FACTS: Fast Times Financial, a mortgage lender, has foreclosed on a 240 unit apartment community and has taken title. The property was constructed in 1962 and had fallen on hard times. About two years earlier it was condemned by the municipality and the tenants were all forced to move. The property has been essentially abandoned for two years and nothing has been done to protect it from the elements[TK1] . About one year ago a wind storm blew off several large portions of the shingles and every time it rains water enters the building. Fast Times has hired a private security service to patrol the property at night and prominently posted no trespassing signs. The City has indicated that if nothing is done with the property within 60 days they will order that it be torn down.
The property consists of four three story buildings with brick exteriors arranged around a court yard with parking around the perimeter of the buildings. It is located on a high traffic street and in a good neighborhood. It is adjacent to an urban wild life preserve and has become home to some of the wild life (cats, mice and rats in particular).
Fast Times has marketed the property for sale and is in the final stages of negotiation with a prospective purchaser. The parties have agreed to a purchase price of $2,000,000. The buyer plans to rehab the property.
On a cool fall afternoon two of the buildings are completely destroyed by a fire set by several neighborhood children who were playing in the property.
Upon taking possession of the property Fast Times purchased property and casualty insurance from Insidious Insurance. It is difficult to place insurance on abandoned properties and Insidious specializes in such coverage and its premiums reflect the higher risk. Prior to binding coverage Insidious required an inspection of the property. The premiums were roughly $50,000 per year. Coverage was in place at the time of the loss.
Insidious refused to pay any thing on the claim arguing that the policy provided for “Actual Cash Value” which was defined as Replacement cost less depreciation. The insurance company alleged that because of the condition of the property, it was fully depreciated and had no value. Fast Times sued for $1,000,000.
Discuss the contract issues raised by the facts and do not mess with the facts.