Hegel v. The First Liberty Insurance Corp.

The Hegels (the plaintiffs) purchased homeowner’s insurance from The First Liberty Insurance Corp. (the defendant) to insure against “sinkhole losses.” The policy defined a “sinkhole loss” as “structural damage to the building, including the foundation, caused by sinkhole activity.” The policy did not define structural damage. Subsequently, the plaintiffs discovered damages to the walls and floors of their house and thereafter submitted a claim to the defendant. The defendant denied the claim after determining that the damage was from normal concrete shrinkage, settling, and foundation issues. In the defendant’s view, these did not qualify as structural damage. The plaintiffs subsequently hired a public adjuster who determined that sinkhole activity was one of several causes of the damage. The public adjuster defined structural damage as “damage which impedes the structural components from supporting the loads they are intended to support.” The plaintiffs then hired a testing laboratory that determined that sinkhole activity and other factors had combined to cause the damage. As a result, the plaintiffs got a bid of $146,000 to repair their foundation and a bid of $20,000 to repair cosmetic damage. The plaintiffs sued. Both parties agreed that “structural damage” was an unambiguous term, and that it should be given its plain meaning. However, the parties did not agree on what that meaning was.

The trial court held that “structural damage” meant any physical damage to the plaintiffs’ home (i.e., to their structure) and awarded them the full $166,000 from the bids. The defendant appealed.