In a recent case, a Louisiana Court of Appeal decided, among other issues, what damages policyholders were entitled to in a Hurricane Katrina claim. That sounds like a typical scenario, however to add some spice to the mix, the policyholders had sold the property following the loss. The case is Jouve v. State Farm Fire & Cas. Co., 2011 WL 3611800 (La. App. 4th Cir.).
The policyholders’ home sustained “catastrophic” damages during Hurricane Katrina on August 29, 2005. At the time of the loss, they had a flood policy issued through the National Flood Insurance Program (“NFIP”) and a homeowners policy with State Farm. The insureds filed a flood claim with the NFIP, and were paid $145,000. They also filed a claim with State Farm, and received about $41,000 for wind damages.
In 2006, the policyholders sold the property to a buyer in an “as-is” condition without making any repairs. Later in 2006, the policyholders filed a lawsuit against State Farm, asserting that State Farm’s payment of about $41,000 was insufficient to pay for all of their damages. They provided State Farm with their own contractor’s estimate of $111,000 for replacement costs associated with the wind damage. After a re-inspection, State Farm paid the policyholders some additional funds. The policyholders then filed suit, seeking replacement cost benefits for their dwelling.
State Farm filed a motion for summary judgment, arguing that the policyholders were not entitled to replacement cost under the terms of the policy since they sold the property in “as-is” condition in 2006 and they had never performed any repairs or replacement of the property before the sale. State Farm argued that the policyholders were only entitled to the actual cash value as of August 28, 2005.
The trial court granted State Farm’s motion and the appellate court affirmed the ruling. The appellate court analyzed the language of the policy and held that the following language supported the decision limiting the policyholders to actual cash value because of the sale:
SECTION I – LOSS SETTLEMENT
We will settle covered property losses according to the following:
COVERAGE A – DWELLING
1. Replacement Cost Loss Settlement – Similar Construction
a. We will pay the cost to repair or replace with similar construction and for the same use on the premises shown in the Declarations, the damaged part of the property covered in Section I – Coverages, subject to the following:
(1) until actual repair or replacement is completed, we will pay only the actual cash value at the time of the loss of the damaged part of the property, up to the applicable limit of liability shown in the Declarations, not to exceed the cost to repair or replace the damaged part of the property;
(2) when the repair or replacement is actually completed, we will pay the covered additional amount you actually and necessarily spend to repair or replace the damaged part of the property, or an amount up to the applicable limit of liability shown in the Declarations, whichever is less;
The court held that the policy clearly states that the policyholders were limited to the actual cash value of the damaged property because they did not repair or replace the damaged property before the sale. This case does however stand for the proposition that a policyholder may still claim damages sustained from a loss despite a later sale of the insured property. The policyholder has an insurable interest if there was no assignment of the claim negotiated as part of the sale transaction. Keep in mind that this court applied Louisiana law in reaching its decision, and the law may differ in other jurisdictions.