Last week’s post, What does a Property Insurance Coverage Policyholder Lawyer Think About the Day After a Def Leppard Concert?, should have had this title. But while writing that blog, I was not focusing as completely as a I should have been on this exciting area of insurance coverage law. Slabbed paid me some compliments in its post, We will not now allow defendant to raise as a defense plaintiff’s failure to perform an act which defendant itself greatly hindered plaintiff from performing…, and suggested that others in Mississippi cite to the cases noted in my post. So, to prove that there is a little more legal support than just two cases and that maybe Mississippi jurists have been a little too lenient letting State Farm and other insurers escape replacement cost obligations through their failure to fully or timely pay actual cash value benefits, I am following up with this post.
The rule and argument suggested in the title has applied at least in the following cases:
- Zaitchick v. Am. Motorists Ins. Co., 554 F.Supp. 209, 215-16 (DCNY 1982), aff’d., 742 F.2d 1441 (2d Cir. 1983), cert., den., 464 U.S. 851 (1983) (insureds were entitled to recover replacement cost of home destroyed by fire where insurer refused to pay any money to insureds, which made it impossible for them to comply with condition precedent requiring them to first rebuild their home).
- Ward v. Merricmack Mut. Fire Ins. Co., 753 A.2d 1214, 1218 (N.J.Super. 2000) (evidence created jury question whether property insurer’s refusal to tender actual cash value made it impossible for insured to satisfy the precondition of replacing structure in order to recover the replacement cost and whether the condition was excused);
- McCahill v. Commercial Union Ins. Co., 446 N.W.2d 579, 584 (Mich. Ct. App. 1989) (insurer’s failure to advance funds that insured required in order to rebuild home excused insured from having to rebuild in order to recover for replacement costs of home);
- Northrop v. Allstate Ins. Co., 720 A.2d 879, 883 (Conn. 1998) (insurer’s withholding recoverable depreciation determined to be wrongful because it rendered replacement cost coverage illusory);
- Bailey v. Farmers Union Co-op of Neb., 498 N.W. 2d 598-599 (Neb. Ct. App. 1992) (insured homeowner who lost home to fire entitled to recover replacement cost where insurer failed to ensure that it would reimburse her up to the policy limits);
- Polack v. Fire Ins. Exch., 423 N.W. 2d 234, 235-38 (Mich. 1988) ("no reason to hold an insurer any less accountable for its actions than other contracting parties" replacement cost was proper measure of damages in case where insurer’s refusal to pay prevented insured from rebuilding within 180 day deadline set forth in policy);
- State Farm Fire & Cas. Ins, Co. v. Miceli, 518 N.E. 2d 357, 362 (III. Ct. App. 1987) (where insurer’s denial of vandalism claim precluded insured from making repairs, insured entitled to recover replacement costs at trial);
- Maine Mut. Fire Ins. Co. v. Watson, 532 A.2d 686, 688-89 (Me. 1987) (insured entitled to recover replacement cost).
Virtually all insurance adjusters are taught to pay the actual cash value of a building or personal property as soon as possible, and then pay replacement values on an ongoing basis for real and personal property as the replacement expense is “incurred.” Some policies now require the replacement to be “paid” or “completed” rather than just “incurred.” But, this is the common practice and most companies have written claims procedures that more specifically follow exactly what I have highlighted. Most insurers, acting in good faith, extend any limitations of the period of replacement, so long as the insurance company is not prejudiced by delay. The typical prejudice caused by delay usually results in price increases, and many insurers will still pay far outside the allowable period of replacement if the price is brought back to present value at the time of the loss rather than an inflated amount. Some just pay, acknowledging that they profited from the float. Some of my colleagues and others upset with the insurance industry may hate that I acknowledge that insurance adjusters and their managers do anything correctly, but most property insurance cases are amicably resolved in this manner.
The problem arises when some carriers make the wrong call on coverage, fail to timely pay, or fail to pay enough to allow the policyholder to replace. When this happens, the aforementioned cases and thorough discovery into the insurer’s typical practices provide the policyholder with a good factual and legal basis for jurists to relieve the policyholder from a harsh result caused by the insurance company’s wrongful decisions or actions.