In Brown, et al. v. Everett Cash Mutual Insurance Company, et al., the insureds property was completely destroyed by a fire.  Everett made various payments to the insureds under the policy, including payment for damage to the residence itself at actual cash value.  The insureds contended, they were entitled to full replacement value for the property.

In determining whether the insureds were entitled to replacement cost value for the residence, the Pennsylvania Superior Court looked to the policy language, which stated the insureds were entitled to recover the actual value of the property at the time of loss, without deduction for deterioration a/k/a replacement cost value.  However, the policy also included language that stated the insurer did not have to pay for “more than the actual cash value of the loss until repair or replacement [was] completed”.

On appeal, the insurer argued it was only required to pay full replacement value if the insureds repaired or replaced the residence.  Since the insureds failed to timely repair the residence, the insurer took the position, the insureds were not entitled to full replacement cost of the residence.  Conversely, the insureds argued they were unable to rebuild the residence without the full replacement cost proceeds from the policy, thus, this should not prohibit them from recovering the full replacement value.  In reaching its holding, the court reasoned other courts had analyzed similar policy provisions which stated that the policy would pay no more than actual cash value for the loss or damage until actual repair or replacement was completed and had found this language to by clear and unambiguous.  Consequently, the court concluded the insurer had not breached the policy by only paying the actual cost value, as opposed to the replacement value for the residence, because the insureds had failed to comply with a condition precedent.

This case offers support for an insurer that pays out policy proceeds on an actual cash value, as opposed to replacement cost value, due to an insured’s failure to comply with the policy’s requirements.  However, we note, that in order for an insurer to take such action, based on this case, the policy needs to clearly state that an insurer need not pay replacement cost value until the insured has undertaken the repair or replacement work.

Thanks to Colleen Hayes for her contribution to this post.