Doctrine of Accord and Satisfaction Bars Suit for Additional ACV Payment

COMMERCIAL PROPERTY – ACV SETTLEMENT PAYMENT – ACCORD & SATISFACTION
Rose Inn of Ithaca, Inc. v. Great Am. Ins. Co.
(3rd Dept., decided 7/1/2010)

A 2004 fire destroyed plaintiffs' country inn.  Because plainitiffs decided not to rebuild the inn, the policy entitled them to the actual cash value (ACV) of the loss.

The inn's owner, Charles Rosemann, who had decades of experience in the hospitality industry and had negotiated a prior insurance claim involving a fire at the inn, conducted the claim negotiations on this fire himself.  In that role, the Rosemann dealt regularly with the independent adjuster to assess the degree of damage to the inn and, after receiving the preliminary estimate of the damage, contended that over 200 items in it required revision.  Rosemann raised a number of issues with regard to the revised estimate as well, and his efforts resulted in a final estimate of property damage that was almost $250,000 higher than the preliminary one. He also negotiated directly with Great American Insurance Company, rejecting multiple settlement offers and arguing that surviving portion of inn was a total loss.  After several months of these extensive discussions, the claim was settled for the ACV of those parts of the inn that had been destroyed, leaving unresolved only the issue of whether plaintiffs were entitled to payment for the surviving portion of the inn.  The final settlement amount of approximately $4.3 million was over $300,000 more than Great American's initial offer.

Plaintiffs then commenced this action asserting two breach of contract claims: (1) that Great American had omitted items from its ACV calculation of the damages it paid; and (2) that Great American should have determined that the surviving portion of the inn was a total loss and awarded plaintiffs its ACV, as well.  Great American answered and raised the affirmative defense of accord and satisfaction.  Plaintiffs subsequently moved for partial summary judgment on the first claim insofar as it related to architectural and engineering fees allegedly omitted from the ACV calculation, and Great American cross-moved for summary judgment dismissing the entire complaint.  Supreme Court, Tompkins County (Garry, J.) granted plaintiffs' motion as to the issue of liability on the first claim, and granted Great American's cross motion to the extent of dismissing the second claim.  Great American appealed.

In MODIFYING the order appealed from to grant complete summary judgment to Great American, dismissing the entire complaint, the Third Department held that the equitable doctrine of accord and satisfaction barred the complaint's first cause of action (underpayment of ACV damages), as well:

We agree with defendant that the first claim should have been dismissed in its entirety, and modify Supreme Court's order accordingly. As defendant asserts, an accord and satisfaction is effected when "the parties . . . enter into a new contract wherein they agree that a stipulated performance will be accepted in the future, in lieu of an existing claim" (Altamuro v Capoccetta, 212 AD2d 904, 904 [1995], lv denied 85 NY2d 808 [1995]; see Environmental Prods. & Servs. v Consolidated Rail Corp., 285 AD2d 700, 702 [2001]). That is, an accord and satisfaction requires a "dispute as to the amount due and knowing acceptance by the creditor of a lesser amount" (Consolidated Edison Co. of N.Y. v Jet Asphalt Corp., 132 AD2d 296, 303 [1987]; see Marine Midland Bank v Scallen, 161 AD2d 103, 105 [1990]). Inasmuch as an accord and satisfaction constitutes a contract, it must be shown that the parties set forth the essential elements thereof and had a meeting of the minds to resolve the disputed claim (see Sorrye v Kennedy, 267 AD2d 587, 589 [1999]; Altamuro v Capoccetta, 212 AD2d at 905).

Here, the relevant facts are not in dispute. The adjuster who handled plaintiffs' claim for defendant stated in deposition testimony that the architectural and engineering fees incurred in the rebuilding of a structure are a component of replacement cost. She also acknowledged that replacement cost is reduced by depreciation to arrive at the actual cash value of a structure. Nevertheless, the adjuster omitted the architectural and engineering fees from the final settlement amount because plaintiffs decided not to rebuild the inn. Rosemann asserted that he was unaware that defendant did not intend to pay the fees. Long before accepting the settlement amount, however, Rosemann had questioned whether the fees should be included in the estimate that became the basis for the final calculation of replacement cost. Although the dispute over the fees evidently was not expressly resolved, plaintiffs nonetheless accepted the settlement. As such, there was no "mistake as to matters that were not within the contemplation of the parties" that would permit plaintiffs to avoid the creation of an accord and satisfaction (13-70 Corbin on Contracts § 70.14 [2010]). Inasmuch as plaintiffs elected to accept the settlement without asserting their current claim that they were entitled to an additional amount representing the architectural and engineering fees, the settlement gave rise to an accord and satisfaction (see Gimper, Inc. v Giacchetta, 221 AD2d 682, 684 [1995]; Hemingway v State Farm Fire & Cas. Co., 187 AD2d 814, 815-816 [1992]; Restatement [Second] of Contracts § 154; cf. Sabbagh v Pantano, 170 AD2d 411, 412 [1991]; Ginsburg v Equitable Life Assur. Socy. of U.S., 254 App Div 445, 447 [1938], lv denied 279 NY 810 [1938]). 

Plaintiffs' remaining claims for damages, arising from items allegedly omitted or undervalued in the final calculation of actual cash value, are similarly barred by accord and satisfaction. As with the above fees, while Rosemann stated that he did not know that sales tax was omitted from the calculation of replacement cost, the record reveals that he inquired about the inclusion of the tax prior to settling the claim. Plaintiffs further complain that the valuation of unit costs in the settlement was too low, but Rosemann had affirmatively challenged those costs prior to settling the claim. Finally, plaintiffs concede that damages for additional tear-out and removal costs are unavailable given the dismissal of the second claim. 

Key to the application of the doctrine of accord and satisfaction is a showing that the parties discussed, negotiated and agreed upon a compromised figure in settlement of a disputed claim.  In this case, evidence of the extensive negotiations preceding plaintiffs' acceptance of Great American's ACV settlement offer supported the doctrine's application to bar plaintiffs' suit for additional damages.