Recently we received a request from a reader inquiring as to who has the responsibility to determine whether a sustained covered loss to a dwelling can be repaired or must be replaced? We always urge a thorough reading of the policy first, to determine what coverages exist, but not all policies are clear. Here’s a breakdown of the law in New York.
A standard fire insurance policy will provide coverage of either (1) the actual cash value (ACV) of the property at the time of the loss; (2) the amount which it would cost to repair or replace the property with materials of “like kind and quality” within a reasonable time after such loss, without allowance for any increased cost of repair or reconstruction by reason of any ordinance or law regulating construction or repair, and without compensation for loss resulting from interruption of business; or (3) to an amount not exceeding a specified amount. The policy will generally state the coverage is for the lesser amount of the three cost valuations.1
Just because your policy has a “Guaranteed Replacement Coverage” endorsement, doesn’t mean that damages will automatically be replaced rather than repaired. The usual language in the clause is something to the effect that when the insurer agrees to pay the full cost “to repair or replace the damaged dwelling or other structures with equivalent construction on the same premises” without regard to liability. It does not require the replacement of a damaged dwelling on the same premises, it merely establishes that the limit of guaranteed replacement coverage is what it would cost to replace the damage to the structure on the same premises in order to recover the replacement cost.2
Now, if you’re anything like me you’re thinking “but she never answered the question.” My answer is: “Depends on the policy.” Always look to see what the policy covers and how coverages are worded. In the standard fire insurance policy quoted above, “repair or replace” always appears together, even in the Guaranteed Replacement Coverage endorsement. If you’ve read your policy and are still unsure, contact someone that can help interpret the policy language and has insight into how courts in the applicable state interpret certain provisions of the policy.
1 Ins. Law § 3404(e).
2 Kumar v. Travelers Ins. Co., 211 A.D. 2d 128, 627 N.Y.S.2d 185 (4th Dept. 1995).