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The Fourth Circuit Court of Appeals vacated summary judgment in favor of an insurer after finding the insured had substantially complied with the policy conditions. The case is Hale v. State Farm Fire & Cas. Co., 2025 U.S. App. LEXIS 294 (4th Cir. 2025). Please note that this opinion is unpublished and therefore has limited precedential value.
What Happened
Ray Hale lost his home to a fire on November 24, 2018. He notified his insurance carrier, State Farm, later that day. Hale’s policy provided $400,000 in coverage for him to repair or replace his dwelling “with similar construction and for the same use.” Until the repair or replacement was complete, however, State Farm would only pay actual cash value (ACV). Similar replacement cost coverage (RCV) also applied to the contents of Hale’s dwelling under the same policy, obliging State Farm to pay only “the cost to repair or replace less depreciation” until Hale actually repaired or replaced his belongings.
A few days later, State Farm sent Hale a letter requesting an inventory of his personal belongings, along with supporting documentation. The letter also stated his policy imposed a two-year time limit on repairs or replacement for both his dwelling and his personal belongings, meaning he would only receive payment if he finished any and all repairs and replacement before November 24, 2020.
Hale’s daughter, Robin Dye, helped her father create and submit an inventory within four days of the fire, listing more than 200 items of personal property worth $181,000. She issued an updated inventory in December 2018, and a second, final update in February 2019. Some entries were more detailed than others, making it difficult to determine the value of certain items. State Farm conducted interviews with both Hale and Dye under oath, seeking more information about the various inventories in order to establish a more concrete value of Hale’s personal property. Both admitted there had been inconsistencies, and some of the estimated values “were purely speculative.”
State Farm sent a formal offer to Hale in October 2019, but received no response. Six months later, still without response, State Farm posted two checks to Hale’s attorney, one for his dwelling and the other for “the undisputed items of personal property.” State Farm reminded Hale that he had until November 2020 to complete the repair and/or replacement of his home and personal property, which would entitle him to additional payments for the replacement cost of his home and belongings. State Farm eventually notified Hale’s attorney that the claim had been put on “Inactive” status based on the lack of communication.
On the November 24, 2020 deadline, Hale served a breach of contract claim on State Farm, arguing the carrier had undervalued his personal property and improperly held back the replacement cost of his dwelling. Unbeknownst to State Farm, Hale, Dye, and Dye’s husband had all co-purchased a house in early November 2020, though the sale was not closed until December 1. State Farm sought summary judgment, but Hale did not respond.
Litigation
The trial court ruled in favor of State Farm regarding both Hale’s dwelling and his personal property claims. His policy had provided replacement cost if he replaced his home within two years of the fire; however, the actual replacement wasn’t completed until December 1, 2020, two years plus one week after the fire, the date Hale, Dye, and Dye’s husband had closed on their new house. In terms of his personal property, Hale had never, despite repeated requests, submitted supporting documentation for much of his personal property, which State Farm argued was a violation of the policy provision that required an insured to submit supporting documentation of personal property values before filing suit. The judges sided with State Farm, and Hale appealed.
Substantial Compliance
Hale agreed that his policy required replacement of his dwelling within two years of the loss, but he argued that strict compliance with policy conditions was not required under Virginia law. In Aetna Cas. & Sur. Co. v. Harris, 239 S.E.2d 84 (Va. 1977), the Supreme Court of Virginia found that, absent bad faith by the policyholder, “the law requires of an insured only a reasonable and substantial compliance with the clauses, conditions and warranties of the policy” (emphasis added). The trial court recognized this standard, but the judges had determined there was no substantial compliance on Hale’s part.
The judges of the Fourth Circuit Court of Appeals disagreed. They noted that Hale’s coverage deadline for replacing his home was November 24, 2020. During pre-trial discovery, State Farm Hale had co-purchased a house with his daughter and son-in-law on November 2, 2020, several weeks before the deadline; however, the deal was not closed until December 1, one week after the deadline.
The appellate judges said the trial court had relied on the wrong date. Even though the sale had closed after the deadline, Hale was bound to the contract, and therefore obligated to buy the house, when he signed the contract with his daughter and son-in-law on November 2, 2020. A reasonable jury, the court said, could find that Hale had substantially complied before the November 24 deadline based on his contractual obligation to buy the replacement dwelling as of November 2.
Supported Values
The judges reached a similar conclusion regarding Hale’s contention that State Farm had undervalued the inventory of his personal property. The record showed that Hale had been compensated for several items of lost property that State Farm could determine with a higher degree of accuracy. However, though State Farm made multiple requests for substantiating documents, Hale had not provided any further evidence to support the alleged value of the remaining property. Since Hale had “failed to substantiate further payments with documentation before filing suit” in breach of his policy provisions, State Farm claimed it was not obligated to provide the requested indemnity.
This reasoning, similar to the insurer’s arguments regarding the “replacement” of Hale’s dwelling, required Hale to be in “strict compliance” with his policy, rather than substantially compliant. True, said the court, many of the entries in the three inventories of Hale’s personal property were nothing more than a bare bones description of the item and an estimated value. But there was still sufficient information, despite State Farm’s declarations to the contrary, to determine a reasonable value for more of the property on Hale’s inventory.
State Farm’s version of the line item inventory of Hale’s property for Coverage B differed from the last version Hale had submitted. It referenced items Hale hadn’t mentioned, and several more were missing. Even considering these discrepancies, the payment State Farm had sent Hale accounted for the value of nearly three-quarters of Hale’s personal property. The judges determined that a reasonable juror could conclude that Hale had, in accordance with state law, substantially complied with his obligation to submit evidence documenting the value of his personal property before he filed suit against State Farm.
Conclusion
In both of the instances described above, State Farm and the trial court had held Hale to a strict compliance standard, instead of going by substantial compliance. At minimum, there was enough evidence supporting both versions of the events, which created a substantial question of material fact that could only be decided by a jury. The trial court decision was vacated, and the appellate judges sent the case back for consistent proceedings.
Editor’s Note: Strict compliance means the insured has to comply with all of the policy conditions perfectly, with no substitutions or exchanges, before coverage will apply. Substantial compliance, on the other hand, gives the insured a little wiggle room and allows for coverage so long as the insured has complied with the policy conditions for the most part; perfection is not required so long as the insured can show a good faith attempt.
In this case, State Farm said Hale hadn’t replaced his home within two years because he was not physically present, and therefore not “replaced” his home, in a new dwelling until December 1, 2020, one week after the two-year anniversary of the fire. Hale entered a contract to purchase a home with his daughter and son-in-law on November 2, 2020, twenty-two days before the deadline. Once he signed that contract, he could not back out of it. This step was enough for the appellate court because, as the judges pointed out, the only step left for Hale to complete the “replacement” of his home was the actual moving in. He was a (co-)homeowner as soon as he signed the sales contract.
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