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Vol. 7 - Issue 8
November 7, 2018


Is Failure To Deliver A College Degree “Property Damage”?

I’m pretty sure that if you asked a person walking down the street what is property damage, they’d probably have little trouble giving you a quick and simple answer. Now ask a coverage lawyer or insurance company claims representative -- and it had better be on a long street you’re walking on. Now the answer will be anything but quick or simple.

Policyholders and insurers have long had disagreements over whether certain damage qualifies as “property damage.” This is often tied to the fact that, while “property damage” is most likely thought of as a physical injury to property, general liability policies also include loss of use of property – whether physically injured or not – as “property damage.” Not it’s not as easy as a broken window.

A dispute over the existence of “property damage” – under an unusual scenario -- was before the court in Spencer v. Hartford Cas. Co., No. ED106337 (Mo. Ct. App. Sept. 25, 2018). The coverage issue arose under the following circumstamces.

Mary Spencer and thirteen of her classmates filed suit against Saint Louis College of Health Careers, under the Missouri Merchandising Practices Act, alleging unfair and deceptive practices in its representation of its Applied Sciences of Practical Nursing Program. Spencer alleged that SLCHC lacked approval to award such a degree and, despite contrary claims, could only provide a lesser diploma. Spencer sought recovery of tuition, attorney’s fees, and punitive damages.

SLCHC looked to Hartford for coverage under a Business Liability policy. Hartford denied a defense and indemnity to SLCHC. A bench trial resulted in a judgment in the aggregate in the amount of $1,227,954.

The students, following, essentially, an assignment, sought coverage from Hartford. The trial court granted Hartford’s motion for summary judgment. The case went to the Court of Appeals of Missouri.

At issue was the existence of “property damage.” Specifically, is the awarding of a diploma, rather than a degree, a loss of property?

The court concluded that it was not: “The [Missouri Merchandising Practices Act] petition does not allege physical injury to tangible property or the loss of use of tangible property. Instead, it discusses SLCHC’s misrepresentation of its Applied Sciences of Practical Nursing Program and sought to recover tuition based on this misrepresentation. Appellants’ loss was monetary and it is well-settled that money is not tangible property. Therefore, SLCHC’s failure to award the promised degree cannot possibly or potentially be ‘property damage.’”

While the argument had not been preserved for appeal, the court also addressed whether loss of use of books and supplies was “property damage.” The court concluded that it was not: “Appellants [students] used their books and supplies, the cost of which was included in the tuition, in pursuit of a lesser diploma than the degree promised. Appellants conflate ‘loss of use’ with the value of the books and supplies included in the tuition. The books and supplies were part of the monetary fraud perpetrated and alleged in the Appellants’ petition against SLCHC.”


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