Under the powers vested by sections 397 and 401 of the Illinois Insurance Code, the Director of Insurance has promulgated certain regulations which provide for a Standard Fire Policy.1 Under the regulations, all fire insurance policies must “conform to such form of the Standard [Fire] Policy or, if another form is used, shall for the purpose of concurrence of contract be deemed to be the Standard [Fire] Policy.”2 In essence, the Standard Fire Policy guarantees a minimum level of coverage that supersedes any attempt to limit or to restrict coverage to less than the statutory minimum.3 Stated differently, fire insurance policies may not provide coverage less than that set forth in the Standard Fire Policy.4

In Chaney v. Allstate Indemnity Company,5 the insured’s dwelling was damaged by fire. The Allstate policy required the dwelling to be repaired, replaced, or rebuilt within 180 days of receipt of the actual cash value payment to recover replacement cost benefits. The policy also contained an endorsement (AU277–2) incorporating the terms and provisions of the Illinois Standard Fire Policy, including its insuring agreement, which stated, in part, that fire insurance is afforded to “the extent of the actual cash value of the property at the time of loss, but not exceeding the amount which it would cost to repair or replace the property with material of like kind and quality within a reasonable time after such loss.”

Prior to trial, the circuit court barred the insured from recovering on a replacement cost basis because the insured had failed to make any repairs within 180 days of Allstate’s actual cash value payment.6 This ruling was reversed on appeal. The Illinois appellate court reasoned that Endorsement AU277–2 eliminated the 180-day time limit, and permitted the insured a “reasonable time” following the fire to repair or to replace the dwelling and recover the full replacement cost value of the loss. Because there had been no determination that the insured had failed to make repairs to or replace the property within a reasonable time, or that a reasonable time had already elapsed, the appellate court concluded that the lower court erred in limiting the insured to an actual cash value recovery.

Although it dealt with Allstate’s 180-day replacement requirement, the Chaney decision establishes that, under the Standard Fire Policy’s insuring agreement, an insured is not required to make repairs or to replace fire-damaged damaged property within a certain time-period to recover the full replacement cost value of the loss. Instead, the insured may make repairs or to replace damaged property within a “reasonable time”7 of the fire without forfeiting the right to recover replacement cost benefits. Chaney is yet another example of the Standard Fire Policy trumping policy provisions that limit, restrict, narrow, or reduce the coverage provided by the standard form.
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1 215 ILCS 5/397 and 5/401(a); 50 Ill. Adm. Code § 2301 et. seq.
2 50 Ill. Adm. Code § 2301.30.
3 The Illinois Standard Fire Policy 165-line form is identical to the Standard Fire Policy 165-line form prescribed by the New York legislature in 1943. See Corday’s Dep’t Store, Inc. v. New York Fire and Mar. Underwriters, Inc., 442 F. 2d 100, 104 (7th Cir. 1971).
4 See Streit v. Metropolitan Cas. Ins. Co., 863 F.3d 770, 773 (7th Cir. July 17, 2017) (“Though the Illinois Supreme Court has yet to address the question, both the statutory text and Illinois appellate courts make clear that in the event of a conflict between an insurer’s policy and the Standard Fire Policy, the latter controls.”).
5 Chaney v. Allstate Indemnity Co., 2017 IL App (1st) 161498-U (Sept. 5, 2017).
6 In Illinois, actual cash value is defined as replacement cost less depreciation. See Carey v. Am. Fam. Brokerage, Inc., 391 Ill.App.3d 273, 281 (1st Dist. 2009).
7 What constitutes a reasonable time to repair or to replace fire-damaged property depends on the facts and circumstances of each case. See Tamco Corp. v. Federal Ins. Co. of New York, 216 F.Supp. 767 (N.D. Ill. 1963).

  • Matthew Tennenbaum

    What other states have Standard Fire Insurance policies where in the event of a conflict between policies the statutory text states that the Standard Policy controls? Thank you for this blog which is always such a plethora of helpful informatiin. Love reading it each day.

  • Unlike the Allstate policy, ISO homeowners policies do not require actual replacement within 180 days. They just say that the insured must make claim or express the desire to replace by advising the insurer of such within 180 days. This illustrates why personal lines insurance is NOT a commodity. These kinds of differences in policy language can result in significant differences in coverage.

    Here is an article I wrote on this years ago:

    Does Property Have to be Replaced Within 180 Days?
    Author: Bill Wilson

    Recently our “Ask an Expert” service received two questions dealing with the “requirement” that property be replaced within 180 days under the ISO Homeowners program. This issue comes up quite often and this provision is sometimes misinterpreted. Below is one of the questions we received and our response.

    Question
    This question concerns loss settlement under the ISO HO 00 03 04 91 form. The property is located in Minnesota. Specifically, the insured suffered a loss to siding on the house on July 7. The company paid the loss on November 21, but held back depreciation until replacement is completed. The insured plans to replace but, being winter now, is unable to do so for several months. Now the company refuses to pay for depreciation because the insured did not replace within 180 days. Is that correct?

    Answer
    As always, make sure that this isn’t a proprietary company form since some do require replacement be completed within 180 days…at least I’m told that’s the case. In the 1991 ISO HO 00 03 04 91 form, there is nothing that says the insured must physically replace the property within 180 days, just “make claim” for replacement cost. Here are the policy excerpts:

    (4) We will pay no more than the actual cash value of the damage until actual repair or replacement is complete. Once actual repair or replacement is complete, we will settle the loss according to the provisions of b.(1) and b.(2) above.

    (5) You may disregard the replacement cost loss settlement provisions and make claim under this policy for loss or damage to buildings on an actual cash value basis. You may then make claim within 180 days after loss for any additional liability according to the provisions of this Condition 3. Loss Settlement.

    As you can see, the policy says it will only pay ACV unless the repairs are actually made…then it’ll pay replacement cost. Nothing in this clause puts a time limit on completion. The company does not have to pay replacement cost until after the property has been physically repaired or replaced, but paragraph (5) doesn’t say that repair/replacement must be COMPLETED within 180 days…it just says the insured essentially has to make up his/her mind and “make claim” within 180 days. I don’t know how it could be much clearer…if completion of all work is to be done within 180 days, then it could have just said that.

    This clause is entirely at the insured’s discretion. The purpose is to allow the insured to be paid ACV up front, then get the difference between that and replacement cost later. The insured might elect to collect ACV in lieu of replacement cost if he/she doesn’t intend to make repairs. This situation came up recently in an “Ask an Expert” question where the homeowner did not intend to replace the property, but rather move to a retirement home.

    I’ve seen other non-ISO forms that DO require completion of repairs/replacement within 180 days. For example, one policy said that the company “will not pay more than the actual cash value of the damaged building structure until the repair or replacement is completed.” As you can see, that wording is different than the ISO form.

    VU faculty member David Thompson points out that ISO’s new HO2000 program makes it even clearer that replacement doesn’t have to be completed in 180 days. Specifically, form HO 00 03 10 00 says:

    e. You may disregard the replacement cost loss settlement provisions and make claim under this policy for loss to buildings on an actual cash value basis. You may then make claim for any additional liability according to the provisions of this Condition C. Loss Settlement, provided you notify us of your intent to do so within 180 days after the date of loss.

    Note that you can get replacement cost coverage if you “notify us of your intent to do so” in 180 days. According to ISO’s filing memorandum, this was a “no change” in coverage, meaning that the intent was the same in the 1991 edition.

    For an example of a related article, check out “Property Replacement at the Same Location.”