What judges say is contemplated under an insurance policy is not always what adjusters are taught and do in the field. Jeremy Tyler noted in Prevention of Performance with Replacement Cost Value, that a new appellate decision involving QBE rewrites how insurance companies may adjust property losses in Florida. Many will read Buckley Towers Condo., Inc. v. QBE Insurance Corp., No. 09-13247, 2010 WL 3551609 (11th Cir. Sept. 14, 2010), to stand for the proposition that an insurer does not have to pay anything towards replacement costs under a replacement cost policy, when replacement is elected but repairs have not been made.
As Tyler noted,
…the 11th Circuit Court of Appeals did not agree that the doctrine of prevention of performance should be applied to replacement cost value provisions in insurance contracts when an insurer fails to pay at least actual cash value. The 11th Circuit recognized that it would have been costly, inconvenient, and most certainly a hardship for the association to pay for millions of dollars in repairs without the assistance of insurance benefits, but held that the hardship would not excuse the contractual requirement to actually repair the property before replacement cost value damages could be awarded. The appeals court reversed the trial court’s award for replacement cost value, but affirmed the trial court’s award for actual cash value damages, finding that they had been sufficiently proven.
The practical impact of such legal reasoning is that insurers, absent consumer protection statutes requiring payment of replacement costs, can now underpay losses and get away with it. If this unpublished is followed, federal courts will not award the full amount of replacement cost benefits until the insured actually does the work. This seems like a pretty illogical result from the policyholders view, as a replacement cost policy should pay for replacement of the property to a new condition. Where an insurer underpays a loss and refuses to acknowledge a proper amount of value for replacement, how are policyholders supposed to do the replacement? Tyler noted this in his comment:
This decision leaves many unanswered questions for policyholders. For starters, where is one who suffers a large loss supposed to get money to make repairs in order to get replacement cost value? Other issues are equally unsettling in the case, including the supposed election of remedies between ACV and RCV when making an insurance claim that the 11th Circuit discusses.
Adjusters and policyholders should pay attention to the election provisions under the replacement cost portion of the policy. These are rarely discussed or elected. However, in this case, the provisions were specifically discussed in the opinion:
…In the first place, the insurance contract unambiguously requires the insured to repair its property before receiving RCV damages. The insurance contract specifically provides that QBE “will not pay on a replacement cost basis for any loss or damage (1) Until the lost or damaged property is actually repaired or replaced; and (2) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage.” Condominium Association Coverage Form, provision G(3)(d). [DX-1, p. 13-14 out of 14] The insurance contract contains no allowances for advance payments to fund repairs. Both parties agree, and the record undeniably establishes, that Buckley Towers never completed repairs and, thus, would be barred from recovering RCV damages under the plain terms of the contract. We must accept the unambiguous terms of this contract because “[i]nsurance contracts are construed in accordance with the plain language of the policies as bargained for by the parties.” Prudential Prop. & Cas. Ins. Co. v. Swindal, 622 So.2d 467, 470 (Fla.1993).
Applying the doctrine of prevention of performance in this case would impermissibly rewrite the insurance contract on the equitable theory that it would be too costly for Buckley Towers to comply with the terms of the agreement. Under Florida’s binding law, however, courts are not free to rewrite the terms of an insurance contract and where a policy provision “is clear and unambiguous, it should be enforced according to its terms.” Acosta, Inc. v. Nat’l Union Fire Ins. Co., 39 So.3d 565, 573 (Fla.Dist.Ct.App.2010)… Allowing Buckley Towers to claim RCV damages without repairing or replacing entirely removes the plaintiff’s obligations under the Replacement Cost Value section of the contract. The parties freely negotiated for that contractual provision and it is not the place of a court to red-line that obligation from the contract.
Nor is it a defense to say that it would be costly for Buckley Towers to comply with the insurance contract as written. “Inconvenience or the cost of compliance [with contractual terms], though they might make compliance a hardship, cannot excuse a party from the performance of an absolute and unqualified undertaking to do a thing that is possible and lawful.” N. Am. Van Lines v. Collyer, 616 So.2d 177, 179 (Fla.Dist.Ct.App.1993). Although Buckley Towers may be unable to receive the full range of benefits of their contract without an advance payment under Florida law, that cost and inconvenience may not relieve them of repairing the building prior to claiming RCV damages.
Indeed, the Florida courts have upheld similar contracts that expressly require repair before claiming RCV damages. The Florida Supreme Court has explained that, with contracts such as the one in this case, replacement cost damages do not “arise until the repair or replacement has been completed.” Ceballo v. Citizens Prop. Ins. Corp., 967 So.2d 811, 815 (Fla.2007) (citation and quotation marks omitted). See also State Farm Fire and Cas. Co. v. Patrick, 647 So.2d 983, 983 (Fla.Dist.Ct.App.1994) (per curiam). And, by example, the First District Court of Appeal recently held that a trial court had erred by allowing an insured homeowner who had chosen to sell his property rather than repair the structures appurtenant to the house to claim RCV damages instead of ACV damages for the structures. Citizens Prop. Ins. Corp. v. Hamilton, — So.3d —-, No. 1D09-4128, 2010 WL 2671808, *8 (Fla.Dist.Ct.App. July 7, 2010).
Absent a statute, insurance adjusters are generally taught that replacement dollars are owed as soon a bona fide contract for replacement is entered into with a contractor, not when the replacement or repair is complete. Some state departments of insurance are permitting policies which require replacement before benefits are owed. This is problematic for the policyholder, who usually needs the benefits to pay for the replacement. Perhaps agents and insurers should be prevented from selling replacement cost insurance that operates this way. Certainly, this case proves the need for consumer protection legislation and that Replacement Cost Coverage is illusory under many forms of insurance.